Eurozone sees fresh growth spurt

Analysis

Robust eurozone growth shows little sign of faltering and may even have accelerated, according to a closely watched survey released as the European Central Bank holds its latest interest rate setting meeting.

The manufacturing industry purchasing managers’ index for the 12-country region rose to a three month high of 57.0 in October, up from 56.6 in September. “Euro area production output rebounded in October, confounding growing pessimism about the short term outlook,” said Kevin Gaynor, economist at Royal Bank of Scotland, which publishes the index with NTC Economics. Separate data showed a sharp fall in German unemployment, which fell 67,000 in October on a seasonally-adjusted basis to 4.35 million, cutting the jobless rate from 10.6% of the workforce to 10.4%. The upbeat data - in contrast to that of the US - strengthens the case for further interest rate increases, even though eurozone inflation fell this week to just 1.6%, the lowest in seven years, on the back of falling oil prices. The ECB will almost certainly hold its main rate unchanged at 3.25% on Thursday but Jean-Claude Trichet, president, is expected to signal that another quarter percentage point rise is highly likely in December. The latest data are also likely to encourage speculation that the ECB will increase rates further in 2007. So far the central bank has offered no hints about next year but had previously appeared to leave the door open for a de facto pause. The purchasing managers indices pointed to the stabilisation of manufacturing growth at a high level in Germany, Europe’s largest economy, where the rate of increase in staffing levels also eased. But output growth appeared to have accelerated in Italy, France and Spain. Eurozone manufacturing new orders growth accelerated back near to April’s six year peak, reflecting buoyant domestic demand as well as export sales. That is likely to encourage hopes that eurozone growth will remain robust despite clear signs of a slowdown in the US. (FT.com)

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