Mixed news about the Eurozone economy

Olli Rehn, Vice-President of the European Commission in charge of Economic and Monetary Affairs and the Euro, gave a press conference on the spring economic forecasts (EC Audiovisual Services).

According to a flash estimate released by Eurostat, the EU statistical service, Eurozone annual inflation was 0.9% in November, slightly higher than 0.7% in October. Excluding the items under the categories of energy, food, alcohol & tobacco, the November inflation rate is thought to have been 1% after 0.8% in October. Price developments in the sector of non-energy industrial goods, the core productive heart of every economy, remained subdued in November with a 0.3% annual rise of selling prices, as in October.

Subdued inflation

There is no doubt, then, that the two decimal points of more inflation in November cannot constitute a solid base to predict an upwards trend of consumer prices in the euro area. Looking at the main components of euro area inflation, Eurostat found that “food, alcohol & tobacco is expected to have had the highest annual rate in November (1.6%, compared with 1.9% in October), followed by services (1.5%, compared with 1.2% in October), non-energy industrial goods (0.3%, stable compared with October) and energy (-1.1%, compared with -1.7% in October)”.

Of course, the key question remains whether Eurozone’s growth course is developing positively or negatively. In this respect, inflation’s oscillation around the unit is not a good omen at all. On the contrary, there is good news from a today’s announcement by Markit, that the manufacturing Purchasing Managers Index (PMI) for Eurozone skyrocketed at 51.6 in November from 51.3 in October. The initial estimate for November was 51.5. All indexes above 50 are in the growth region, while below it it’s recession.

Markit chief economist Chris Williamson commented that this is an aggregate index for the entire Eurozone with output and exports expanding for a fifth month in a row. Unfortunately this doesn’t have a noticeable effect on employment. The same source also observes that there are large discrepancies between euro area member states. While Germany (52.7 29-month high), Austria (54.3 30-month high), the Netherlands (56.8 31-month high), Italy (51.4 30-month high) even Greece (49.2 51-month high) are reaching 29 to 51 month highs, France (48.4 5-month low) and Spain (48.6 6-month low) are moving in the negative direction. These two last countries are the second and fourth largest economies of Eurozone respectively.

Diversified growth

Williamson added that this month’s manufacturing PMI survey as a whole produced some good news. He suggested though that Eurozone economy is far from having gained a solid growth path and there is still a lot to be corrected. In total it seems that manufacturing in euro area is now at its best for at least the last two and a half years. Of course GDP increase remains at very low levels. According to the same source manufacturing output may rise by around 0.6% in the fourth quarter of the year.

If this is the case and manufacturing output is estimated to rise by 0.6% in the fourth quarter, then GDP growth may lag behind that. Presumably the final outcome will depend on the services sector. Judging from a noticeable increase of the inflation rate in this large sector to 1.5% in November from 1.2% in October, it is highly probable that growth in the services sector may exceed the relevant percentage for manufacturing. In any case, overall growth in Eurozone remains subdued and highly diversified.