Business activity in Eurozone gained momentum at year-end

Business activity in the Eurozone finished in 2016 with the strongest momentum of more than five years, while the region is directed to a year of political uncertainty. The Purchasing Managers’ Index (PMI) of IHS Markit has climbed to 54.4 points in December from 53.9 in November. This is the highest level in 67 months and over the assessment from December 15.

The strength of both the manufacturing and service sectors is partly due to the weaker Euro. The economic expansion is reflected in big four, leading by Spain, followed by Germany.

The signs of faster growth can provide a strong foundation for the economy of the Eurozone, as it headed to consecutive year of potentially turbulent politics. The European Central Bank (ECB) decided in December to extend its quantitative easing program until the end of 2017, amid weak core inflation and uncertainty looming national elections and the beginning of negotiations on the conditions UK leaving of the European Union.

Since the Brexit referendum the price pressure has increased with the growth of energy prices. On Tuesday, Germany announced an inflation rate of 1.7% in December, well above the estimates of economists and closer to the target of the ECB. The cost of production in the Eurozone rose last month to its highest level since mid-2011.

The recent data on the PMI index signal for even stronger end of 2016 than previously estimated, although whether this provides extremely necessary springboard for the recovery of the Eurozone. This depends on political developments in the coming year.

However, the sub-index for the services slightly decreased compared to the preliminary data in December to 53.7 points against 53.8 points in November.

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