France outpaces Germany in economic activity

The euro area’s unexpectedly upbeat economic data on Tuesday might have come with more than one positive message.

A gauge for economic activity rose to the highest level in almost six years in February, following previous signals that the region’s frail recovery is finally taking shape.

National gauges showed France outpacing Germany for the first time since 2012, a development that could signal growth in the 19-nation region is becoming more broad-based.

“France’s revival represents a much-needed broadening out of the region’s recovery and bodes well for the euro zone’s upturn to become more self-sustaining,” said Chris Williamson, chief business economist at IHS Markit.

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A composite Purchasing Managers’ Index for the euro area climbed to 56.0 from 54.4 in January, putting the region on track for quarterly growth of 0.6 per cent, IHS Markit said on Tuesday. Economists predicted the gauge would slip to 54.3.

Inflows of new orders and surging optimism among firms point to a potentially stronger expansion in the coming months, the London-based company said.

Economic recovery

European Central Bank president Mario Draghi has repeatedly argued that stimulus is still necessary to ensure the economic recovery becomes self-sustained and reaches beyond the region’s top performers.

Even though a swath of data – including inflation – has signalled that momentum may be stronger than expected, stoking calls for an exit from unconventional policy, the institution has committed to continue asset purchases until at least the end of the year amid political risks.

“The ECB will be cheered by the signs of stronger growth and further upturn in price pressures, though will no doubt remain concerned that elections and Brexit could disrupt the business environment this year,” Mr Williamson said.

Output

Reports published earlier in the day showed the French economy expanding by the most since 2011, propelled mainly by strength in its services sector. Output in Germany accelerated slightly less than in France, but still posted the strongest reading in three years.

While the region’s two largest economies are on track for growth of 0.6 per cent to 0.7 per cent in the first quarter, IHS Markit noted a key difference between the recoveries: prices. Input costs rose by the most since mid-2011 in France and Germany. Firms in the former did not pass these gains on to customers, while output prices in the latter showed the largest monthly increase in more than five years. – Bloomberg