Job Creation Signals Euro-Area Economy May Pick Up in 2016

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Employees work in a food factory in Scotland. The ECB predicts gross domestic product will increase 1.5 percent in 2015, 1.7 percent in 2016 and 1.9 percent the year after

Photographer: Jeff J. Mitchell/Getty Images

Euro-area companies are hiring at the fastest pace in more than four years in a sign of confidence that the region’s economy will gather momentum in the coming months, according to Markit Economics.

Encouraging order intake pushed the rate of employment growth to the highest since May 2011, the London-based company said on Wednesday. A Purchasing Managers’ Index for manufacturing and services was at 54 in December, close to the

54.2 the previous month.

The European Central Bank cut one of its key interest rates this month and extended quantitative easing after updated projections showed that the region’s inflation rate would rise slower than previously anticipated. Economic confidence remained at the highest level in more than four years in November in anticipation of more stimulus. Unemployment is at the lowest since early 2012.

“Most encouraging of all is the upturn in the rate of job creation to the highest since spring 2011, which will hopefully pave the way for unemployment to start falling in earnest as we move into 2016,” said Chris Williamson, chief economist at Markit. “The upturn in hiring also indicates that companies are optimistic about prospects for the year ahead and suggests that the pace of GDP growth could lift higher in coming months.”

The euro fell 0.1 percent against the dollar to $1.0922 at 10:55 a.m. Frankfurt time.

Solid Growth

The ECB predicts gross domestic product will increase 1.5 percent in 2015, 1.7 percent in 2016 and 1.9 percent the year after. Inflation is forecast to accelerate to 1.6 percent in 2017 from 0.1 percent this year.

Markit said the PMIs signal “ongoing solid growth” in Germany, which recorded its best quarter in 1 1/2 years, while French activity slowed closer to stagnation.

“The quarterly assessment for both sectors in the euro area and particularly in Germany is positive, which suggests that the economy gained some momentum in the fourth quarter,” said Stefan Kipar, an economist at Bayerische Landesbank in Munich. “On the price side, the outlook in the euro area has clouded further, also because of continuously high competitive pressures.”

Output prices in the euro area continued to fall in December in a sign that companies were “generally unable” to pass higher costs on to customers, Markit said.

“Policy makers are likely to remain disappointed by the relatively modest pace of expansion and lack of inflationary pressures, given the stage of the recovery and the amount of stimulus already in place,” Williamson said.