Sweta Killa: The Euro zone is showing speedy recovery in the second quarter despite escalating tension between the European Union and Russia over the latter’s annexation of Ukraine’s Crimea peninsula.
Business activity in April picked up at its fastest pace in almost three years and factory activity also strengthened. This is primarily thanks to reduced debt burden, improving domestic demand, growing exports, stronger currency, falling unemployment and abating deflation fears.
Solid Growth Everywhere
This is especially true given that Markit’s Composite Purchasing Managers Index for the Euro zone (18-nation bloc) jumped to 54.0 in April from 53.1 in March. Eurozone Manufacturing Purchasing Managers Index climbed to a three-month high of 53.4 in April from 53.0 while the index for the Euro zone service industry rose to a 34-month high of 53.1 from 52.2.
The data suggests broad-based recovery with Germany, Europe’s largest economy, leading the way. Growth in both manufacturing and service sectors for Spain and Ireland reached the highest levels in seven and eight years, respectively, while Italy hit a three-year high. However, France, Europe’s second largest economy, is the only Euro zone nation that bucked this trend with a slight drop in new business activity.
Given the gradual recovery in the Euro zone, the European Commission (EU) sees steady growth of 1.2% for this year but lowered the growth outlook for 2015 to 1.7% from 1.8%.
Recent surveys also showed signs of an improving job market in the region with modest hiring.
Though near a record high, unemployment across the Euro zone fell slightly to 11.8% in March from 12% in the year-ago month but remained stable for the past four months. Austria and Germany have lower unemployment rates of around 5% while Spain has the highest rate of 25.3%.
The EU now projects unemployment to drop to 11.8% this year and 11.4% in the next, compared with the previous forecast of 12% and 11.7%, respectively.
Easing Deflation Concerns
While annual inflation rose to 0.7% in April from 0.5% in March, it is still well below the market expectation of 0.8% and ECB’s 2% annual target. However, this eases the fear of deflation in the Euro zone. The EU expects inflation to drop from 1.3% last year to 0.8% this year before rising to 1.2% next year (read: Ride Europe Higher with This Top Ranked ETF).