PN: Euro Boosted by Eurozone PMI Beat, But this is as Good as it Gets
The Euro was buoyed ahead of the weekend by news that the Eurozone economy continues to see its rate of growth increase.
The latest monthly set of business surveys conducted by IHS Markit for March confirm that business activity picked up pace in the Eurozone.
The Manufacturing PMI read at 56.2, better than the forecast for 55.3 and the previous month‚Äôs 55.4
The Services PMI read at 56.5, better than the 55.3 that was forecast and the previous month‚Äôs 55.5.
The Composite PMI read at 56.7, better than the 55.8 that was forecast and the previous month‚Äôs 56.
In short, Eurozone growth hit a six year high with the survey also seeing the best employment growth for almost a decade as both manufacturing and service sector firms responded to surging order books.
Business optimism meanwhile hit a new peak.
‚ÄúThe eurozone economy‚Äôs throttle opened further in March, with business activity and hiring surging higher. The March flash PMI rounds off the best quarter for six years and signals GDP growth of 0.6% in the first quarter. Employment growth is meanwhile the best seen for nearly a decade,‚ÄĚ says Chris Williamson, Chief Business Economist at IHS Markit.
The Euro liked the outcome:
The Euro to Pound Sterling exchange rate rose 0.41% to reach 0.8650.
The Euro to Dollar exchange rate rose 0.18% to reach 1.0802.
The data saw markets increase bets that the European Central Bank will be increasingly inclined to withdraw its extraordinary stimulus programme that has for a long time kept the Euro under pressure.
Markets are also looking for the first set of interest rate rises to take place in late 2018 on the back of the data.
But, one analyst tells us to this could be as good as it gets when it comes to Eurozone economic outperformance.
Impressive Data Releases Unlikely to be Repeated
‚ÄúSpeculation about higher rates would not have arisen if the euro zone economy had not recovered in recent years,‚ÄĚ says Dr J√∂rg Kr√§mer at Commerzbank in Frankfurt.
The economist notes that leading indicators such as the Eurozone PMI are after all already at a very high level.
‚ÄúThis makes it less likely that there will be any more upside surprises,‚ÄĚ says Kr√§mer in a noted dated March 24.
Kr√§mer argues that for growth to exceed projections this year and next to any significant extent, thus prompting more rapid ECB rate hikes, it would have to be considerably stronger than the solid 1.7% rate achieved in 2016.
‚ÄúAnd this is rather unlikely,‚ÄĚ says Kr√§mer, citing the following points:
The global upturn began in 2009, i.e. quite some time ago. This makes it less likely that it will gain much more momentum now,
The fading house price boom in China means that the underlying economic problems there are becoming more visible, which poses a threat to demand for Eurozone exporters.
In contrast with the US, corporate and private debt in the euro zone in relation to GDP has barely fallen, especially in Italy.
So the process of getting the books in order continues, which in itself acts as a damper on economic growth.
Growth will therefore be unlikely to accelerate enough to exceed ECB projections on any substantial scale which is likely to ensure the Euro is kept in check.