Purchasing managers‘ index in the euro zone: The growth celebrations can continue in 2018

The turn of the year 2017/2018 did nothing to change the exceptionally optimistic sentiment in the euro zone. According to the preliminary results of the purchasing managers‘ survey in the EMU, sentiment remains very upbeat. A slight decline in the index for the manufacturing sector was compensated by better results from the services sector index. The composite index, which combines the assessments of both sectors, therefore increased from 58.1 to 58.6 points. This is the highest reading in 139 months! All in all, the assessments of new orders, employment prospects and order backlog point to unbroken growth. Nevertheless, this could be accompanied this year by a stronger inflation development because of the marked rise in prices on the purchasing side reported by the purchasing managers which, according to the survey, have resulted in the sharpest rise in selling prices since 2011.

The country data of IHS Markit show little movement at a high level among the composite indicators in Germany and France. Accordingly, there has likely been a further marked increase in the rest of the euro zone. Growth is therefore broad-based.

Germany’s purchasing managers remain optimistic at the start of the new year. In the services area, the index climbed to the highest reading in nearly seven years while in the manufacturing sector the sentiment indicator declined slightly from its record level in December. The combined reading of the composite index of 58.8 points remained more or less unchanged on the previous month’s reading of 58.9 points. Unimpressed by the prolonged quarrels over the formation of a new government, the sub-components of the business expectations for the next 12 months also climbed to the highest level since 2012. The sentiment readings signal that the strong economic growth will continue.

The survey results also show the purchasing managers in France to be in an upbeat mood. The index for the manufacturing sector declined somewhat from a high level while the sentiment index for the services sector recorded an increase. The broad composite index thus improved slightly from 59.6 to 59.7 index points. The mood in the French private sector therefore also remains upbeat at the beginning of 2018. For 2017, French economic growth is expected to lie only slightly below the 2 percent mark. Based on these good sentiment readings at the beginning of 2018, the chances of at least similarly strong growth being recorded this year are good. With even the possibility of it turning out slightly stronger.

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