Eurozone November PMIs Point to Fourth-Quarter GDP Acceleration

A closely watched barometer of Eurozone economic strength beat forecasts in November, bolstered by evidence of services sector expansion which bodes well for fourth-quarter GDP growth.

IHS Markit's eurozone composite purchasing managers' index unexpectedly rose to an 11-month high of 54.1, while analysts had been looking for little or no change from October's reading of 53.3. (Any reading above 50 denotes economic expansion).

The services sector PMI jumped even more decisively to 54.1 from 52.8, also an 11-month high, while the manufacturing PMI edged up 53.7 from 53.5, instead of declining, as expected. That put the manufacturing PMI at its highest point in almost three years.

The indices followed a strong set of October PMIs and Markit said they pointed to a fourth-quarter eurozone GDP growth rate of 0.4%, up from 0.3%  in the third quarter, with the German economy expected to expand by 0.5%, compared with a disappointing 0.2% in the previous three months. Markit said the French economy looks likely to expand by between 0.2% and 0.3% between October and December, after France posted 0.2% GDP growth in the third quarter and contracted by 0.1% in the previous three months.

But Capital Economics European economist Jennifer McKeown sounded a note of caution over the indices, which come before elections in France and Germany next year, when Britain has pledged to start the formal process of leaving the EU.

"The survey suggests that the improvement in the euro-zone as a whole should be sustained in the near term, with the new business index also rising further. But we suspect that growth will slow next year as political uncertainty and a temporary rise in inflation weigh on domestic demand.

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