Photographer: Krisztian Bocsi/Bloomberg

Euro-Area Growth Gathers Speed as Top Three Economies Converge

  • Purchasing Managers’ Index at 56.8 versus 56.7 flash estimate
  • IHS Markit says firming recovery will fuel ECB exit debate

Activity in euro-area manufacturing and services accelerated more than initially estimated as growth in the region’s three largest economies converged.

A composite Purchasing Managers’ Index rose to 56.8 in April from 56.4 in March, IHS Markit said on Thursday. An April 21 flash report was for an increase to 56.7. The spread between gauges for the rates of expansion in Germany, France, and Italy hasn’t been narrower since data collection started in 1998.

“With the final reading coming in slightly above the earlier flash estimate, the PMI surveys portray an economy that is growing at an encouragingly robust pace, and that risks are moving from the downside to a more balanced situation,” said Chris Williamson, chief business economist at IHS Markit. Faster gains in Spain, Ireland, and Italy highlight “the increasingly broad-based nature of the current upturn.”

Even though signs are increasing that the region’s recovery is firming, the European Central Bank isn’t be in much of a hurry to unwind extraordinary stimulus. Underlying inflation has only just begun to climb above the 1-percent threshold it hasn’t exceeded since 2015, and wage growth continues to be muted.

“The encouraging picture from the survey data is likely to help raise many forecasters’ expectations of euro-zone economic growth in 2017, and will also no doubt add to speculation that ECB rhetoric will turn increasingly hawkish,” Williamson said.

So far, ECB President Mario Draghi has argued that significant stimulus is still needed as risks -- although diminishing -- remain tilted to the downside.

Data on Wednesday showed euro-area gross domestic product gained 0.5 percent in the first quarter, matching the pace of the previous period.

Output growth hit six-year highs in both manufacturing and services in April, with improvements supported by a pick-up in new orders, IHS Markit said. While rates of expansions eased slightly in Germany and France, momentum in Italy was the strongest in nearly a decade.

Before it's here, it's on the Bloomberg Terminal.