Daily Management Review

As Key Index Edges Up, Euro-Area Economy Shrugs Off Brexit


08/23/2016




As Key Index Edges Up, Euro-Area Economy Shrugs Off Brexit
With growth showing little sign of being curtailed by fallout from the U.K.’s Brexit vote, the euro-area economy maintained its momentum in August.
 
For a second month in July, a composite Purchasing Managers Index for the 19-nation region rose to 53.3 from 53.2. That reading marks the best in seven months and that’s above the 50 level that divides expansion from contraction.
 
“The PMIs suggest that growth still is more robust in the service sector than in manufacturing – a phenomenon that can be observed in many regions and that goes hand in hand with slow growth of global goods trade,” said Holger Sandte, chief European analyst at Nordea Markets in Copenhagen.
 
While noting that inflation remains muted and services confidence dipped this month IHS Markit said its report shows the euro-zone economy remains on a “steady growth path.” Similar to the average of the first half of the year, it estimates GDP growth of about 0.3 percent this quarter.
 
Chris Williamson, chief economist at Markit in London said that there are “no signs of the recovery being derailed by Brexit uncertainty.”
 
“The weakness of the overall pace of expansion and disappointing trends in hiring, order books, business optimism and prices all suggest that policy makers will keep the door open,” he said while adding that the PMI will “add to the belief” that the European Central Bank won’t see a need for immediate further stimulus.
 
IHS Markit said earlier that in August, Germany’s composite PMI dropped to 54.4 in the current month from 55.3 in July. The composite measure in France was pushed to a 10-month high of 51.6 in August from 50.1 in July by an improvement in the services sector, it said.
 
The data came as a boost for many European leaders including German Chancellor Angela Merkel who had earlier said that the European Union needs to show it can prosper without the U.K.
 
“We respect Britain’s decision but naturally also want to make it clear that the other 27 are working for a prosperous, safe Europe. We need results,” said Merkel during a meeting with President Francois Hollande and Italian Prime Minister Matteo Renzi.
 
Continental leaders are trying to move toward an initial vision of the post-Brexit bloc for a summit of all 28 EU countries except Britain with future relations between the EU and the U.K. in limbo for now.
 
The fact that U.K. access to the EU’s free movement of goods, workers, capital and services won’t automatically carry over into any new needs to be recognized by Prime Minister Theresa May’s government, Michael Fuchs, deputy parliamentary leader of Merkel’s party bloc, had said.
 
“If you’re member of a club you have certain benefits, but if you’re out, you will not have the benefits anymore,” Fuchs said in television interview recently.
 
Competing visions between countries that want to put the EU’s institutions -- and their bureaucrats in Brussels -- on a shorter leash and those who view closer European integration as part of the solution has been laid bare by Brexit.
 
(Source:www.bloomberg.com)
 
 






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