Eurozone economy surges ahead in September - ING

Eurozone PMI beat expectations by some distance, coming in at 56.7, up from 55.7 as economic performance does not seem to be a barrier to an ECB tapering decision next month, according to Bert Colijn, Senior Economist at ING.

Key Quotes

“While analysts had expected a small decline in the composite PMI, Eurozone economic activity once again surprised on the upside. This rounds out a run of data that provide evidence of building pipeline inflation pressures. The improved wage growth in Q2 that was announced last week, consumer confidence which reached the highest level since 2001 this month and today’s PMI all point to increased strength in the Eurozone economy. This will help to build a case for ECB tapering next year, in addition to scarcity and the end of deflationary fears. Indeed, the PMI also indicated a strong rise in selling prices in the Eurozone in September.”

“Still, with inflation set to remain well below target for the coming years, it is unlikely that somewhat better economic data will persuade the ECB to announce a hawkish game plan for 2018. Although it increased, selling price inflation was still weaker than in April according to the PMI. This indicates that while price pressures are building slowly but surely, it seems unlikely that recent developments will make a meaningful difference to the expected inflation path for the coming year.”

“Overall, the economy seems to still be in strong shape. The manufacturing sector PMI reached a 77 month high in September. This further underpins expectations of strengthening industrial production in the Eurozone, although the PMI has been more positive than production figures have been for a while now. With the service sector PMI improving as well, this does paint a rosy picture for Q3 growth, setting the stage for a GDP growth rate of 2% or even slightly higher for 2017 as a whole. That is not a bad economic environment to announce a wind-down of asset purchases for the ECB.”