Weak euro helps eurozone manufacturers enjoy best month since 2014

Posted on December 1, 2016

Political risk? What political risk?

Factories in the eurozone enjoyed their best month since the start of 2014 in November, supported by a weakening currency and strong performances in its northern economies, according to an influential business survey of the sector.

Manufacturing activity climbed to hit 53.7 in November, according to a Purchasing Manager’s Index (PMI) compiled by IHS Markit. Any reading above 50 indicates growth, with the gauge rising from the 53.5 hit in October and recording its 41st consecutive month of expansion . Manufacturing makes up a fifth of the eurozone’s total economic output.

The bloc’s performance was pushed up by a 66-month PMI high in Austria and robust surveys from the Netherlands and Germany.

A weakening in the euro, which fell 5.5 per cent against the dollar last month and endured its worst slump against the pound since 2009, also helped boost export-oriented manufacturers, said Markit.

Softness in the euro is also stoking inflationary pressures, with factories reporting their highest price pressures since 2011.

November was also a good month for Italian manufacturers, where the headline gauge climbed to its best level since June as the country votes in a crucial referendum this weekend.

Italian manufacturers reported their strongest increases in output and new orders in five months, supported by domestic and international demand.

France, also hit by political jitters ahead of a presidential election next year, saw its PMI index soften slightly to 51.7 from 51.8 this month.

The manufacturing numbers suggest the continent’s firms are managing to “brush off political worries” said Chris Williamson at Markit.

Factories in Europe’s dominant economy Germany remained in expansionary territory at 54.3, slipping back from the 33-month high hit in October.

The figures suggest GDP growth in the eurozone will accelerate at the end of the year, after the economy expanded by 0.3 per cent in the three months to September.

But still weak outlook for growth and inflation in the 19-country block is expected to push policymakers at the European Central Bank to unveil their third leg of quantitative easing measures next week.

“While the ECB looks poised to extend its quantitative easing programme at its December meeting, the upturn in growth and inflationary pressures will further fuel talk of whether we could see the ECB start tapering its asset purchases next year”, said Mr Williamson.

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