Euro area set for robust growth this year

Frankfurt

THE euro area has entered a year of solid economic growth that may see companies expanding capacity to meet increasing demand, Markit Economics said.

A Purchasing Managers' Index for manufacturing and services unexpectedly rose to 54.3 in December from 54.2 in November, compared with a Dec 16 estimate for a drop to 54, the London-based company said. The data suggest growth in the final quarter of 2015 was the fastest in 4 1/2 years, according to the report.

The economic recovery in the 19-nation euro area is picking up as unprecedented stimulus by the European Central Bank reaches companies and households. While inflation remains stuck far closer to zero than to the ECB's goal of just under 2 per cent, bank lending is improving and economic confidence is at the highest level in more than four years.

"The eurozone economy starts 2016 on a solid footing and well placed to enjoy a year of robust expansion," said Chris Williamson, chief economist at Markit. "It's particularly encouraging to see firms taking on staff in increased numbers, suggesting that businesses are preparing for stronger demand in the coming year by boosting capacity."

The PMI for the bloc's dominant service industry was 54.2, unchanged from November but up from a flash reading of 53.9. That helped pull the final composite PMI up to a four-month high of 54.3.

The composite output price index for December was stable at 49.5, the third month below the 50 mark that separates growth from contraction, suggesting it could take even longer for inflation to rise to near the ECB's target.

But firms added new jobs at the fastest rate since May 2011 anticipating better business this year. The employment sub-index was 52.8 in December from 52.2. The unemployment rate in the eurozone has steadily declined over the past year, although at 10.7 per cent in October it was still double the rate of that in the US and varying widely between countries of the monetary union.

Unemployment probably remained at 10.7 per cent in November, the lowest level in almost three years, according to a Bloomberg survey ahead of a Jan 7 Eurostat report. In December, staffing levels rose in Germany, Italy, Spain and Ireland and were unchanged in France following three months of job cuts, Markit said.

The four economies are all enjoying strong expansions, while France is once again showing signs of stalling. A PMI for manufacturing and services in the region's second-largest economy slipped to 50.1 in December from 51 in November, the lowest since January and just above the 50 threshold that divides expansion from contraction.

Economists predict the euro-area economy grew 0.4 per cent from October to December. Eurostat will publish first data on Feb 12. BLOOMBERG, REUTERS