The rate of eurozone economic expansion accelerated to its highest in the year to date during November. This was highlighted by the final Markit Eurozone PMI® Composite Output Index posting 53.9, slightly below the earlier flash estimate of 54.1 but still the best reading since December 2015.
Growth of manufacturing production slowed slightly since October, but nonetheless expanded at a slightly faster pace than service sector business activity. Services output rose at the quickest rate in 11 months.
The strongest rates of increase were registered by Ireland and Spain, both of which saw growth accelerate (to three- and five-month highs respectively). However, simply by the virtue of its size, Germany contributed the greatest to the latest expansion, with the rate of increase little-changed from October.
Growth accelerated to a nine-month high in Italy, improving from the subdued expansion seen during September and October. Meanwhile, a slowdown in its manufacturing sector saw economic growth in France slip to its weakest since July.
Underlying the faster expansion of euro area economic output was a similar acceleration in new order inflows. The rate of growth in new business was also the best in the year so far, with increases registered across the ‘big-four’ nations and Ireland.
Improved demand exerted pressure on capacity, leading to the fastest accumulation of backlogs of work since May 2011. This in turn encouraged further job creation, with employment rising for the twenty-fifth consecutive month. Moreover, the rate increase was one of the best achieved during the past five-and-a-half years.
Staffing levels were raised in Germany, France, Italy, Spain and Ireland. The steepest increases were signalled by Ireland, Germany and Spain. Only Germany failed to see jobs growth improve since October.
Price pressures continued to intensify during November. Input costs rose to the greatest extent since May 2015, reflecting a strong acceleration at manufacturers (to a 56-month record) and also a mild pick-up at service providers (four-month high).
Faster rates of increase were seen across the big-four nations. Meanwhile, average selling prices rose for the first time in 15 months.
Growth of eurozone services output accelerated to an 11-month high in November, underpinned by the steepest increase in new orders since January. Business optimism† dipped slightly from October’s high, however, to a level below the long run survey average.
At 53.8, the final Markit Eurozone PMI® Services Business Activity Index was down from the earlier flash estimate of 54.1, but remained above the neutral 50.0 for the fortieth successive month.
Output rose across the ‘big-four’ nations and Ireland, all of which also saw their respective rates of expansion improve. The steepest pace of increase was seen in Ireland, followed by Spain and Germany. Italy also registered a solid expansion of business activity. The pace of increase was comparatively modest in France.
Improved inflows of new work led to a further accumulation of outstanding business at eurozone service providers. Backlogs of work rose for the sixth month running and to one of the greatest extents during the past five-and-a-half years. This encouraged further job creation, with staffing levels rising for the twenty-fifth straight month.
Employment increased across all five of the nations covered by the survey. Jobs growth improved in Ireland and Spain (both three-month highs) and Italy (four-month high). Germany also saw a solid increase in payroll numbers, albeit slower than in October. France posted a slight increase following a marginal decrease in the prior month.
Average input prices rose at the quickest pace in four months, mainly due to higher staff costs and rising purchase prices. Part of the increase was passed on to clients in the form of higher output charges. Selling prices rose for the first time since September of last year, albeit only moderately. Germany, Spain and Ireland all recorded higher
output charges. In contrast, France and Italy reported further price discounting.
Chris Williamson, Chief Business Economist at IHS Markit:
The improvement is enough to signal an acceleration of GDP growth to 0.4% in the fourth quarter.
The near-term outlook also looks promising. Rather than fretting about political risk, companies appear to be gearing up for further expansion. Employment is rising at one of the fastest rates seen over the past five years. Employers’ appetite to hire is being whetted by a further accumulation of unfinished work. Backlogs of uncompleted orders showed the largest rise for five-and-a-half years.
The weaker euro appears to be feeding through to faster export-led manufacturing growth, though service sector companies are also enjoying stronger expansion, suggesting that domestic demand is also improving.
Faster rates of expansion were especially welcome in Spain and Italy, where the surveys point to fourth quarter GDP growth of 0.7% and 0.2% respectively.
With growth broadly stable in Germany, the PMI remains consistent with a 0.5% GDP increase in the fourth quarter, while growth is France is running at a more modest 0.2-0.3%.
The signs of steady fourth quarter growth and indications that inflationary pressures are rising will be unlikely to deter the ECB from extending its QE programme at its December meeting. But the extent to which the eurozone is benefitting from the weaker euro in particular, if sustained, will raise the likelihood of stimulus being tapered earlier than previously anticipated.
