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Euro zone businesses roar towards year-end: PMI

Key Points
  • All three headline PMIs above all forcasts in Reuters polls
  • Forward-looking indicators point to busy December
  • PMI points to Q4 GDP growth of 0.8 percent - IHS Markit

Euro zone business growth is roaring as the year draws to a close, a survey showed on Thursday, supporting the European Central Bank's move last month to announce a throttling back of its monetary stimulus.

Surveys covering both the services and manufacturing industries outshone even the most optimistic forecasters in Reuters polls - indicating growth is broad-based - with factories having the second best month in the index's history.

An employee works on an engine production line at a Ford factory on January 13, 2015 in Dagenham, England.
Carl Court | Getty Images News | Getty Images

The bloc has emerged as the surprise economic star of 2017, with growth rates outpacing its peers, and future-looking indicators in the latest Purchasing Managers' Index (PMI) suggest the upturn still has momentum.

IHS Markit's composite flash PMI for the euro zone jumped to 57.5 this month, its highest since April 2011 and smashing the median forecast in a Reuters poll for no change from a final October reading of 56.0. Anything above 50 indicates growth.

"We thought we had reached a peak a few months ago, so this is a surprise. This is a very broad-based looking upturn," said Chris Williamson, chief business economist at IHS Markit.

December looks like it will be busy, too. A new business index rose to 56.9 from 56.6, a near seven-year high and so Williamson said the PMI, if maintained, points to fourth quarter growth of 0.8 percent, outstripping the 0.5 percent predicted in a Reuters poll earlier this month.

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Accelerating growth, alongside increasing price pressures, will be welcomed by policymakers at the ECB who last month took a step towards weaning the euro zone off loose money.

"We've been of the view that the PMIs have been in quite hawkish territory for some time now. If you continue to get numbers this strong there will be increasing talk that the ECB has been behind the curve," Williamson said.

A PMI covering the bloc's dominant service industry also beat all expectations in a Reuters poll, rising from October's 55.0 to a six-month high of 56.2 and comfortably above the median forecast for a very modest increase to 55.1.

Implying a busy end to the year, service firms built up backlogs of work at the fastest rate since May 2011, with the sub-index up from 52.9 to 53.3, pushing them to increase headcount at the fastest rate in almost 10 years.

Manufacturers also had a much better month than anyone polled expected. Their PMI climbed to 60.0 from 58.5, the second-highest reading since the index was first collected in June 1997 and only surpassed in April 2000.

An index measuring output, which feeds into the composite PMI, jumped to a near seven-year high of 60.8 from 58.8.

With new orders coming in at the fastest rate since April 2011, factories built up backlogs of work and stockpiled raw materials.

Yet despite jacking up employment at the fastest rate in the survey's more than 20-year history, with the subindex rising to 57.9 from 57.3, delivery times grew.

"I think you will see a strong end to the year. There is a lot to suggest that beyond December you will see growth persisting at nice strong levels," said Williamson.