Euro area flash PMI index rises in December, economy likely to grow 2.5 pct in 2018

The euro area economy is in an upswing. The purchasing managers’ indices are reaching their all-time highs. The manufacturing PMI is just 0.1 point short of its high. The service sector has also noted a multiyear high at 56.5. The good economic activity makes it easy for the European Central Bank to justify the forced tapering of its bond buying program next year.

The flash manufacturing PMI rose to 60.6 in December. Such high readings of PMI in the past went hand in hand with real GDP growth of over 0.75 percent on the quarter.

“Against this backdrop, our growth forecast of 0.6 percent for the final quarter of 2017 could even turn out too conservative”, noted Commerzbank in a research report.

The data released today supports the expectations that the euro area economy will expand 2.5 percent next year, a much higher rate than most economists anticipate, stated Commerzbank. More and more, the ECB’s extremely expansionary monetary policy is feeding through to the real economy. Also, the external environment stays favorable.

Even if the recent appreciation of euro is a drag on the price competitiveness of firms producing in the euro area, this negative impact is likely to be countered by global demand, which is expected to rise. The solid growth permits the central bank to present the inevitable reduction of its bond purchases next year as fundamentally justified, added Commerzbank.

At 14:00 GMT the FxWirePro's Hourly Strength Index of Euro was neutral at 33.8179, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -56.4541. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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