Eurozone Data Point to Strengthening Recovery -- Update

The eurozone economy appears to have gained fresh momentum as 2017 draws to a close, led by a revival in France.

The fresh acceleration bodes well for next year, and suggests the $10 trillion economy may again partner the U.S. in supporting a stronger global expansion.

Data firm IHS Markit on Thursday said its composite Purchasing Managers Index for the eurozone--based on survey responses from 5,000 manufacturers and service providers--rose to 57.5 in November from 56.0 in October, reaching its highest level in more than 6 1/2 years. A reading above 50.0 signals an expansion in activity.

That was a stronger outcome than most economists had expected, with those surveyed by The Wall Street Journal last week expecting to see an unchanged reading.

Chris Williamson, IHS Markit's chief business economist, said the measure suggests the eurozone economy will grow at a quarter-to-quarter rate of 0.8% in the final three months of the year, which would mark a pickup from 0.6% in the three months through September.

"The message from the latest eurozone PMI is clear: Business is booming, " he said.

France was the main source of surprise, recording its highest reading since the middle of 2011. That surge was led by its services sector, the PMI for which jumped to 60.2 from 57.3, confounding economists' expectations of a drop to 57.0. In a separate survey, the French statistics agency Thursday reported that manufacturing confidence hit a decade high in November.

France's economy has been growing over half a percentage point a quarter for a year, fueled by a strong recovery in business investment and steady consumer spending growth. In 2017, the country's national statistics bureau expects the economy to expand 1.8%, breaking with several years of meager growth.

The stronger growth is a shot in the arm for President Emmanuel Macron, helping the 39-year-old leader reduce France's budget deficit and smoothing the implementation of contentious changes to labor laws.

Still, employment remains a weak spot in France's economic recovery. The latest figures showed unemployment rose to 9.7% in the third quarter--the first quarter-on-quarter increase for two years--and monthly counts of job seekers have shown volatility since Mr. Macron took office in May.

However, there was encouraging news for Mr. Macron in the survey of purchasing managers, which showed new jobs being created at the fastest pace in 16 years. That rapid pace of hiring was shared across the eurozone.

A stronger French economy would add support to Germany's leadership of a stronger recovery. Germany's statistics agency Thursday confirmed that its economy grew at a quarter-to-quarter rate of 0.8% in the three months through September, making it the strongest of the Group of Seven largest developed countries in that period.

The PMI for Germany points to continued strength in the final three months of this year, although the failure to form a government following elections in late September may take a toll on activity if it is prolonged.

The surveys come a day after the European Commission's measure of consumer confidence hit its highest level since January 2001.

The strength of those indicators suggest economists may be wrong to expect a modest slowdown in growth in 2018. They include economists working for the European Central Bank, who expect economic growth to ease to 1.8% from 2.2% this year.

"Next month's ECB meeting will see a fresh set of staff forecasts released alongside," said Cathal Kennedy, an economist at Royal Bank of Canada. "Following today's PMIs...our expectation is that they will upgrade the 2017 GDP growth forecast with the 2018 forecast...also likely to be revised upward."

Were the economy to prove stronger than they had expected, policy makers at the central bank would be less likely to approve another extension of their bond-buying program beyond its tentatively scheduled end in September 2018. The surveys of purchasing managers also recorded a pickup in inflationary pressures, with prices charged by businesses rising at the fastest pace since mid-2011.

"The ECB will be pleased to see that firms' pricing power seems to be coming back, which bodes well for future inflation," said Fabio Balboni, an economist at HSBC.

Write to Paul Hannon at paul.hannon@wsj.com and William Horobin at William.Horobin@wsj.com

(END) Dow Jones Newswires

November 23, 2017 06:21 ET (11:21 GMT)