Eurozone economy ends 2017 on ‘stellar’ note

Jan. 4, 2018 – The 19-country eurozone economy closed out 2017 growing stronger than at any time in nearly seven years and optimism about the year ahead remaining buoyant, according to a closely watched survey Thursday.

Financial information company IHS Markit said that its purchasing managers index — a broad gauge of business activity across manufacturing and services — spiked to 58.1 points in December from the previous month’s 57.5. Any reading above 50 indicates growth and December’s level was the highest since February 2011, pointing to impressive quarterly economic growth of 0.8 per cent.

The eurozone economy gained momentum over 2017 as a series of headwinds that had previously capped growth and optimism eased. Most notably, populist leaders hoping to ride the anti-establishment sentiment that led to Brexit and Donald Trump’s presidential victory in the U.S. failed to win elections in France and the Netherlands.

“A stellar end to 2017 for the eurozone rounded off the best year for over a decade, continuing to confound widely-held fears that rising political uncertainty would curb economic growth,” said Chris Williamson, the firm’s chief business economist.

What’s particularly encouraging for the eurozone, which has spent much of the past decade in crisis mode, is that the growth is broad-based across countries and not just isolated to powerhouse Germany. With previous laggards such as Ireland and Italy showing momentum, there’s renewed belief that the currency bloc has got past its debt crisis and is in a growth cycle that will cut into unemployment. Hiring is running at a 17-year high rate, according to IHS Markit.

“New work is flowing to companies at a rate not seen for a decade and backlogs of uncompleted work are rising sharply,” Williamson said.

While the economic backdrop has transformed over the past few months, it has not boosted wages much and that’s prevented inflation in the eurozone from rising towards the European Central Bank’s target of just below 2 per cent. One big question for the year ahead is whether the growth works through the wider economy to push wages – and inflation – higher. Figures due Friday are set to show inflation in the eurozone stubbornly below target at an annual rate of 1.4 per cent.

The eurozone’s improving growth has helped shore up the British economy amid the uncertainty of Brexit. The country is due to leave the European Union in March 2019, a development that raises countless issues surrounding the future of the British economy.

In a survey of Britain’s key services sector Thursday, IHS Markit, in conjunction with the Chartered Institute of Purchasing and Supply, showed U.K. growth lagging the eurozone’s. Though the survey index rose to 54.2 in December from 53.8 the previous month, it points to fourth quarter U.K. economic growth of 0.4 per cent, half the eurozone’s predicted rate.