Europe’s economic recovery continues thanks to France
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Europe’s economic recovery continues thanks to France

The euro area looked rosier yesterday, as surprisingly positive data was released that showed France is economy is outperforming its peers – including Europe’s largest economy, Germany! This is the first time since 2012 that France has seen more economic activity than Germany, and – according to the most-recent gauge of economic activity – Europe’s economic activity as a whole rose to its highest level in almost 6 years. Taken together, do these facts suggest that economic growth is finally broadening out across the region?

fr economy graph

Source: Bloomberg

According to Chris Williamson, chief business economist at HIS Markit:

“France’s revival represents a much-needed broadening out of the region’s recovery and bodes well for the euro zone’s upturn to become more self-sustaining. The ECB will be cheered by the signs of stronger growth and further upturn in price pressures, though will no doubt remain concerned that elections and Brexit could disrupt the business environment this year.”

A composite Purchasing Managers’ Index for the region rose to 56.0 from 54.4 in January, according to Markit, which puts Europe on track for 0.6% quarterly growth.

While Tuesday’s figures were a nice surprise for the market, they weren’t surprising to everyone. Dominion’s chief investment officer, Arjen Los, explained why Europe is looking better in February’s Economic Outlook three weeks ago:

“The economic tailwind is likely to continue this year based on leading indicators. The European Commission’s Sentiment Indicator, for instance, jumped to a 70 month high in January reaching 108.2. Based on the historic relationship between this indicator and subsequent economic growth this latest reading suggests GDP growth of some 2.5%; a clear acceleration from last year, and ahead of the current IMF forecast (+1.6%).”

Certainly, the data released yesterday agrees with Mr. Los’ more positive assessment of the euro area into 2017. With the French election looming, and the possibility of hard-right populism rearing its head in the French government, nothing can be taken for granted. But as of right now, Europe looks better than it has for years!

The opinions in this article do not reflect those of Dominion Fund Management Limited, and in the instance of any forward-looking statements, these should not be construed as advice.

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