The Eurozone economy has showed signs of heating up, with German manufacturing expanding at the fastest pace since 2011 before a sovereign debt crisis swept through the region, according to a survey closely followed by monetary policymakers.
Across the Eurozone the expansion of industry reached an almost six-year high, according to the composite purchasing managers' index compiled by IHS Markit. It was boosted by strong performances in the bloc's largest economies.
German manufacturers reported expansion at a 69-month high, with the sector’s purchasing managers’ index (PMI) rising to 57 points. With a reading above 50 indicating expansion, this pushed the overall reading for the German economy to expand at the highest rate for almost three years.
Input prices also rose the most since May 2011 in the Eurozone, driven by strong rises in German prices in a further sign of inflationary pressures building in Europe’s industrial powerhouse.
Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, said: “We are running out of superlatives to describe the German economy, at least in so far as goes the incredible rise in the PMIs.
“Overall, solid activity in manufacturing remains the key driver of rising private sector growth,” he added.
Meanwhile the Eurozone's performance was further boosted by a strong performance in the French services sector, which saw expansion accelerate to a six-and-a-half-year high, while manufacturing saw activity unchanged.
Activity in the Eurozone’s second-largest economy has apparently not reacted to possible political turmoil as the threat of Marine Le Pen looms large. The far-right National Front Presidential candidate has promised to hold a referendum on euro membership, which threatens turmoil in European markets.
Alex Gill, economist at IHS Markit, said: “Service providers [in France] remained the driver of overall growth, as evidenced by further sharp expansions in new orders and employment, the sharpest in five-and-a-half years in each case.”
The healthy readings bolster the argument of more hawkish economists that the European Central Bank (ECB) should slow the pace of money entering the economy, with inflationary pressure rising particularly in Germany. Consumer prices rose by an annual rate of 1.9 per cent in January.
However, the ECB has stuck to its line that it will remain committed to accommodative monetary policy, including its quantitative easing programme of bond purchases, until inflation sustainably approaches its target of near but below two per cent for nations across Europe.