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Eurozone Manufacturing Economy Reaches 31-month High

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Eurozone Manufacturing Economy Reaches 31-month High

Business activity in the Eurozone ended the year on a high note, with the region’s manufacturing industries accelerating at the fastest pace since April 2011.

Eurozone manufacturing PMI rose 1.1 percentage points to 52.1 in November, according to Markit Group. A reading above 50.0 signifies expansion, whereas a reading below that level is a sign of contraction.

The renewed upturn in manufacturing contributed to the best quarterly performance in two-and-a-half years, as improving business conditions continue to drive expansion in the goods-producing industries. Manufacturing output rose for the sixth consecutive month on the strength of new orders. New orders were driven largely by the export market, which expanded at the fastest pace since early-2011.

Europe’s largest economy was a big contributor to total output growth. Manufacturing activity inside Germany expanded at the fastest pace since May 2011, led by new orders and a rapidly expanding export market. Germany’s gauge of manufacturing growth rose 1.5 percentage points to 54.2 in December.

Data on services suggest Germany’s recovery was much more evenly-paced than the broader Eurozone. Germany’s gauge of service activity fell to a two-month low, but remained strong at 54.0. On the other hand, Eurozone service activity expanded at the slowest pace since August, with new business growth remaining modest. The Eurozone’s domestic market remained lacklustre, as persistently high unemployment kept demand for consumer services low.

“The rise in the PMI after two successive monthly falls is a big relief and puts the recovery back on track,” said Chris Williamson of Markit. “The upturn is also uneven. Growth is concentrated in manufacturing… while weak domestic demand led to a further slowing in service sector growth.”

The most worrying aspect, according to Williamson, is the unbalanced pace of recovery throughout the currency region. In stark contrast to Germany, “France looks increasingly like the new ‘sick man of Europe,’” as the euro area’s second-largest economy remains vulnerable to another recession.

While these imbalances don’t warrant an increase to monetary stimulus, sluggish growth suggests policy will “remain ultra-accommodative for quite some time.”

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