The euro gains against the pound as the Eurozone economy expands at its fastest in almost six years

 
Jasper Jolly
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German manufacturing expanded at the fastest rate since 2011 (Source: Getty)

The Eurozone economy grew at its fastest rate since before the region’s debt crisis according to a closely watched survey of economic activity, as the German industrial engine boomed to a 71-month high.

The purchasing managers’ index (PMI) for the Eurozone economy rose strongly to 56.7 in March, according to survey compiler IHS Markit.

This marked the fastest expansion, marked by a reading over 50, since April 2011, when issues surrounding Greece’s economy led to a massive contraction in growth.

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The euro jumped against the pound and the US dollar in response. Sterling fell to lows of €1.1561 against the euro at the time of writing, while the euro appreciated as far as $1.0807 against greenback.

While output dipped slightly in the manufacturing sector, the flow of new orders and backlogs of work both grew to their highest point since 2011.

Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, said: “Robust new business in both sectors, at a pace close to a six-year high, is the key story, indicating a positive outlook for output in the short term.

“We can’t be sure that the signal from the PMI is accurate in terms of GDP growth, but the signal is unmistaken.”

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The Eurozone’s two largest economies, Germany and France, both recorded extremely strong expansions.

German manufacturing output rose to its highest level in more than three years, while the sector as a whole saw growth surge to a reading of 57, a 70-month high.

The strong increase in activity allied with rising prices will add pressure to the European Central Bank (ECB) to consider unwinding its historically accommodative monetary policy support.

The prospects for higher German consumer price inflation in particular have become increasingly politicised, as economists from the country call for the ECB to act to dampen price rises.

Read more: Party like it's 2011: The Eurozone economy heats up as manufacturing booms

Consumer price inflation in Germany hit 2.2 per cent in February with the PMI survey showing the potential for further price rises to come.

Trevor Balchin, a senior economist at IHS Markit, said: “Inflationary pressures continued to build, with input and output prices both rising at the fastest rates in around six years.”

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