London - If the latest surveys of
business intentions are to be believed, the euro zone economy is
sparkling, growing at a pace that easily explains the hints from
some European Central Bank policymakers of a pull-back from
their easy-money regime.
IHS Markit's euro zone Flash Composite Purchasing Managers'
Index (PMI), an influential guide to the buying plans of
businesses and hence growth, hit a near six-year high this
month.
It climbed to 56.7 from February's 56.0, its highest reading
since April 2011 and better than any predictions in a Reuters
poll.
At the same time, flash surveys for the currency bloc's two
largest economies -- Germany and France -- also stormed past
expectations to register near six-year highs, conditions likely
to play into elections in both countries this year.
"This is a really solid rate of expansion. It's an economy
firing on all cylinders," Chris Williamson, chief business
economist at IHS Markit, said of the euro zone.
He added that it implied first quarter economic growth of
0.6 percent quarter on quarter, which would be the joint highest
reading since the first quarter of 2011.
One immediate impact may be to put pressure on the ECB to
begin rolling back its historically easy monetary policy, a
combination of zero to negative interest rates and a large
asset-buying programme.
Earlier this month the ECB pledged to extend its bond-buying
programme to at least the end of the year, citing weak
underlying inflation and lacklustre growth in the euro zone. It
will, however, reduce its monthly spend from April.
It also highlighted that it no longer felt a "sense of
urgency" to take further action.
Since then some ECB policymakers, notably Austria's Ewald
Nowotny and Italy's Ignazio Visco, have spoken of a rate hike
within or just after the period of the bond-buying programme.
"These (PMI) numbers will likely reinforce the ECB's view
that downside risks are diminishing. But the central bank will
only tighten gradually," Morgan Stanley said in a note.
The key will be inflation, control of which is the ECB's
primary mandate.
Markit's euro zone PMI sub-index measuring prices charged by
businesses rose to a near six-year high of 53.3.
Inflation in the euro zone was 2.0 percent in February --
around the ECB's target.
"What we are picking up is an increase in suppliers' ability
to hike prices due to strong demand. If that continues to
intensify the ECB should become more worried," Markit's
Williamson said.
Forecasts
All nine of Friday's PMI reports -- manufacturing, services
and composite for the euro zone, France and Germany -- beat even
the most optimistic forecasts in Reuters polls of economists.
France's composite registered 57.6 in March from 55.9 in
February, a particularly significant rise given the country's
economy is generally lagging and this put it above Germany.
How such data plays into the French presidential election,
the first round of which is in April, remains to be seen.
National Front candidate Marine Le Pen will be hoping to
capture votes from those angry with their economic lot. But the
two other leading candidates, Emmanuel Macron and Francois
Fillon are both calling for economic reform. A hefty chunk of
the electorate has yet to decide who to vote for, if the polls
are anything to go by.
Germany's PMI was driven mainly by strong demand for
manufactured goods from the United States, China, Britain and
the Middle East.
The manufacturing index -- reflecting more than two-thirds
of the economy -- rose to 57.0 from 56.1 in February.
Such growth may well increase Germany's current account
surplus, a bone of contention between Berlin and others from
Washington to Brussels.