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France joins the party as euro zone economic outlook shines
February 21, 2017 / 12:15 PM / 7 months ago

France joins the party as euro zone economic outlook shines

(Reuters) - The euro zone’s economy improved sharply this month and enjoyed some rare positive news about jobs, with French business activity unexpectedly matching that in big beast Germany just as its presidential race heats up.

Preliminary purchasing manager surveys on Tuesday for both countries and the whole 19-member euro zone were nearly all better than anyone polled by Reuters had expected and suggested the economy will be increasingly robust in the near-term.

The euro zone’s jobs component grew at its fastest since August 2007, propelled by strong demand and rising optimism.

Employment is one of the euro zone’s primary weaknesses, with joblessness running just below 10 percent, double the rate in the United States.

Overall, euro zone private sector and manufacturing growth accelerated to near a six-year high in February, according to IHS Markit’s monthly Purchasing Managers’ Indexes (PMIs), which gauge businesses’ expectations of how the economy will perform.

“With domestic demand strengthening and a weaker euro boosting orders from abroad, the euro zone economy is seeing robust growth for the moment,” ING economists said in a note.

There was also evidence within the reports of rising inflation, something the European Central Bank will doubtless note if not yet act upon.

But the flash survey for France is likely to have raised eyebrows the most.

The picture it painted of a solid recovery will play straight into spring’s presidential election, in which far-right National Front candidate Marine Le Pen is seeking to harness popular discontent to beat more mainstream rivals.

At 56.2, France’s PMI combining both manufacturing and services for February was the highest it has been in nearly six years. It was also better than the 56.1 reading for Germany, the euro zone’s economic powerhouse.

“France (is) joining the party,” Chris Williamson, chief business economist at PMI compiler IHS Markit, said.

A worker walks in the foundry at the Areva Creusot Forge site in Le Creusot, France, January 11, 2017. REUTERS/Robert Pratta/File Photo

Most of the French improvement came in the services sector, with the manufacturing index actually falling short of expectations although it remained well above the 50 line that denotes growth.

All three leading presidential candidates in France have argued that deep changes are needed in the French economy.

Le Pen wants to take France out of the euro currency bloc as a matter of national sovereignty and also promises popular moves such as lowering the retirement age, taxing the wealthy and cutting energy prices.

Slideshow (2 Images)

Centrist Emmanuel Macron wants closer ties between euro zone governments and labour reform, while conservative Francois Fillon wants to cut public sector jobs, raise the retirement age and cut public spending.

ALL AHEAD

Germany was no slouch either. Growth in its private sector picked up to the highest level in nearly three years, driven mainly by its bustling factories.

The composite PMI for Germany rose to 56.1 from 54.8 in January - a 34-month high and much better than the consensus forecast in a Reuters poll of 54.7.

IHS Markit’s Williamson said the data suggested the German economy was likely to grow 0.6 percent in the first three months of 2017 after expanding 0.4 percent in 2016’s final quarter.

Reflecting stronger growth in output and new business, German firms continued to hire more staff in February, with the overall rate of job creation picking up to reach its highest since June 2011.

For the euro zone as a whole the flash, or preliminary, composite survey rose sharply to 56.0, the highest since April 2011, from 54.4 in January, confounding expectations for a slight dip to 54.3.

“Firing on all cylinders,” Morgan Stanley said in a note. “The PMI details show increased business optimism, strong order books, faster job creation and also rising inflationary pressures.”

Writing by Jeremy Gaunt in London; Editing by Catherine Evans

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