By Paul Hannon
The eurozone economy probably accelerated slightly in the final three months of the year, as surveys of purchasing managers released Thursday also pointed to mounting inflationary pressures that will be welcome news for the European Central Bank.
IHS Markit said its composite Purchasing Managers Index for the eurozone's manufacturers and service providers, which is based on a survey of 5,000 companies, was unchanged at 53.9 in December. A reading above 50.0 signals an increase in activity, while a reading below signals a decline.
That left the average reading for the fourth quarter abovethe previous three periods, suggesting the economy grew at a quarter-to-quarter rate of 0.4%, a slight pickup from 0.3% in the three months through September.
The survey also found that businesses raised their prices at the fastest pace in 5 1/2 years during December, a boost for the ECB as its struggles to lift inflation toward its target of just under 2% after almost four years of falling short.
The ECB last week announced an extension of its bond buying program to the end of 2017 from March, although it cut the size of its monthly purchases to EUR60 billion ($63.8 billion) from EUR80 billion.
"So while the PMI surveys point to the economy gaining strength, the upturn is being accompanied by rising inflation--a scenario that will please ECB policy makers," said Chris Williamson, IHS Markit's chief business economist.
The eurozone's annual rate of inflation was just 0.6% in November, but there are mounting signs that point to a significant pickup in early 2017. According to a survey released by Fitch Ratings Thursday, bond investors now see inflation as a higher risk than deflation--or falling prices--for the first time in five years.
Eurozone manufacturers reported their strongest month of activity for more than five years as the euro's weakness against the U.S. dollar boosts export sales. However, activity in the services sector--which relies more on domestic demand--grew at a weaker pace than in November.
The surveys also pointed to a surprisingly strong pickup in France, where the composite PMI rose to its highest level in 18 months, driven by the country's factories.
"The manufacturing sector is in its best state in six years, France appears to have joined Northern European countries in riding the wave of stronger global growth and a weaker euro," economists at Credit Suisse wrote in a note.
However, a modest revival in economic growth during the fourth quarter would leave the expansion of eurozone gross domestic product for 2016 as a whole at around 1.7%, marking a slowdown from the 2% recorded in 2015.
And with a number of important national elections due in 2017, with the possibility of further advances and possibly victories for nationalist parties that are hostile to the euro and the European Union, economists fear a further slowdown.
"A continued increase in European political stress remains a significant risk in 2017," said the Institute for International Finance in a report on the global economic outlook.
Consensus Economics said that as of early December, the average forecast of the 27 banks and research firms that it tracks was for economic growth of just 1.4% in 2017. By contrast, economists at the ECB expect the economy to grow by 1.7% next year.
Write to Paul Hannon at firstname.lastname@example.org
(END) Dow Jones Newswires
December 15, 201608:45 ET (13:45 GMT)
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