Euro zone economy sparkles, lights way for ECB pull-back

Fri Mar 24, 2017 11:10am EDT
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By Jeremy Gaunt and Jonathan Cable

LONDON (Reuters) - If the latest surveys of business intentions are to be believed, the euro zone economy is sparkling, growing at a pace that easily explains the hints from some European Central Bank policymakers of a pull-back from their easy-money regime.

IHS Markit's euro zone Flash Composite Purchasing Managers' Index (PMI), an influential guide to the buying plans of businesses and hence growth, hit a near six-year high this month.

It climbed to 56.7 from February's 56.0, its highest reading since April 2011 and better than any predictions in a Reuters poll.

At the same time, flash surveys for the currency bloc's two largest economies -- Germany and France -- also stormed past expectations to register near six-year highs, conditions likely to play into elections in both countries this year.

"This is a really solid rate of expansion. It's an economy firing on all cylinders," Chris Williamson, chief business economist at IHS Markit, said of the euro zone.

He added that it implied first quarter economic growth of 0.6 percent quarter on quarter, which would be the joint highest reading since the first quarter of 2011.

One immediate impact may be to put pressure on the ECB to begin rolling back its historically easy monetary policy, a combination of zero to negative interest rates and a large asset-buying program.

Earlier this month the ECB pledged to extend its bond-buying program to at least the end of the year, citing weak underlying inflation and lackluster growth in the euro zone. It will, however, reduce its monthly spend from April.   Continued...

FILE PHOTO: Glasses go under fire during production at the Duralex International glass factory in La Chapelle-Saint-Mesmin, near Orleans, France March 10, 2017. REUTERS/Benoit Tessier/File Photo