Europe's manufacturing growth hits 6-year high

A Daimler battery factory in Germany. Demand for goods is growing at the steepest rate in six years in the euro zone. Germany, Europe's largest economy, led the charge, but IHS Markit said solid upturns were also recorded in other countries
A Daimler battery factory in Germany. Demand for goods is growing at the steepest rate in six years in the euro zone. Germany, Europe's largest economy, led the charge, but IHS Markit said solid upturns were also recorded in other countries PHOTO: REUTERS

LONDON • Manufacturing across the euro zone grew at the fastest rate in more than six years last month, increasing activity as price hikes failed to slow their new orders, a survey showed yesterday.

Signs that the bloc's economy is enjoying a stable and broad-based recovery, alongside inflationary pressures, will be welcomed by European Central Bank (ECB) policymakers.

IHS Markit's Manufacturing Purchasing Managers' Index (PMI) for the euro zone rose to 57 last month, up from April's 56.7 and its highest level since April 2011. The figure matched a preliminary reading.

An index measuring output, which feeds into a composite PMI due next week, also climbed further above the 50 mark that separates growth from contraction. It reached 58.3, its highest in more than six years, up from April's 57.9.

"The euro zone upturn is developing deeper roots as factories enjoy a spring growth spurt," said Mr Chris Williamson, chief business economist at IHS Markit.

"Demand for goods is growing at the steepest rate in six years, encouraging manufacturers to step up production and take on extra staff at a rate not... seen in the two-decade history of the PMI survey."

UPTICK GAINING STRENGTH

The euro zone upturn is developing deeper roots as factories enjoy a spring growth spurt.

MR CHRIS WILLIAMSON, chief business economist at IHS Markit.

A new-orders sub-index nudged up to 57.8 from 57.7, its highest since March 2011. The upturn came even though companies raised prices last month, albeit not as sharply as they did in April.

Germany, Europe's largest economy, led the charge, but IHS Markit said solid upturns were recorded in other countries as well. France lagged behind but is still enjoying its best quarter in six years.

As the bloc's economic performance improves, the ECB is likely to signal a move away from its ultra-easy monetary policy by September, economists in a Reuters poll forecast last month.

But consumer prices rose just 1.4 per cent from a year ago last month, compared with 1.9 per cent in April. That was weaker than the 1.5 per cent expected in a Reuters poll and below the ECB's 2 per cent target.

The reading caused euro zone government bond yields to fall briefly on Wednesday, as it was well below the ECB's target ahead of a meeting of policymakers next week.

It supports the widespread view - one put forward by ECB president Mario Draghi on Monday - that the central bank should keep its current ultra-loose monetary policy stance in place.

Even though risks to euro zone growth have declined, Mr Draghi said he was convinced that an extraordinary amount of monetary policy support was still necessary.

High-grade euro zone bond yields have dropped in recent days on below-forecast inflation numbers from Germany and Spain.

REUTERS

A version of this article appeared in the print edition of The Straits Times on June 02, 2017, with the headline 'Europe's manufacturing growth hits 6-year high'. Print Edition | Subscribe