World Economy

Euro zone growth surges to near six-year high despite upcoming French elections

Euro zone growth leaps to near six-year highs

Growth in euro zone business activity surged in February to its highest level in almost six years, according to the latest survey of the services and manufacturing sectors by IHS Markit.

The results showed robust upturns for the French and German economies despite political uncertainty in both countries due to elections this year.

The overall flash composite index of services and manufacturing activity in the euro zone spiked to 56.0 in February, up from 54.4 in January, Markit said on Tuesday. This was its highest reading since April 2011. The index surpassed expectations for a reading of 54.3, according to analysts polled by Reuters. The 50-point threshold separates expansion from contraction.

France reported a composite PMI (Purchasing Managers' Index) of 56.2 for February, well above analyst forecasts and the 54.1 reported for January. Germany's figure also surged to a figure of 56.1 for February.

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Euro zone moves up a gear

"The euro zone economy moved up a gear in February," Chris Williamson, chief business economist at IHS Markit, said in a note on Tuesday.

"The European Central Bank will be cheered by the signs of stronger growth and further upturn in price pressures, though will no doubt remain concerned that elections and Brexit could disrupt the business environment this year. No change in policy therefore looks likely until at least after the German elections in September," Williamson added.

Both Germany and France witnessed their sharpest respective increases in new orders since May 2011 which then boosted employment in each country. The key difference between the two leading economies was that Germany's growth was buoyed by the manufacturing sector, whereas France had been driven by its services sector.

Meanwhile, the data also showed job creation in the euro zone soared to a high not seen in just shy of a decade and business optimism also surged which would appear to encourage investors that momentum is building throughout the bloc ahead of numerous general elections. However, inflationary pressures continued with prices accelerating in both services and manufacturing.

"(Overall) some encouraging news for the region which suggests that growth will be somewhat stronger than our previous forecast of 1 percent in 2017 as a whole. That said, policymakers at the ECB (European Central Bank) will not yet be convinced that recent signs of a pick-up in activity will translate into sustained upward pressure on inflation," Stephen Brown, European economist at Capital Economics, said in a note.

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