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The Eurozone’s Economy Picked up Again in November

The terrorism-induced disruptions to life in parts of Europe show no sign of hitting the economy...yet. JOHN THYS AFP/Getty Images

It looks like the European Central Bank will be pushing on an open door if it adds more stimulus to the Eurozone economy in December.

Activity picked up markedly in the heart of the European economy in November, according to a closely-watched survey released Monday. Research firm Markit said its Purchasing Managers’ Index for the 19-country bloc rose to its highest level in three months, creating jobs at a faster rate than at any time since early 2011.

The preliminary, or ‘flash’, estimate for the PMI rose to 54.4, from 53.9 a month earlier, and well above the 50 level that separates growth from contraction. “Moreover, the survey’s employment, new orders and backlogs of work indicators all signalled the strongest monthly expansions in four-and-a-half years.”

The manufacturing PMI rose to from 52.3 to a 19-month high of 52.8, while the services index rose to 54.6 from 54.1.

“The data are signalling GDP growth of 0.4% in the closing quarter of the year, with 0.5% in sigh if we get even just a modest uptick in December,” said Chris Williamson, Markit’s chief economist. He added, though, that he didn’t expect the improvement to stop the ECB from adding more stimulus to the economy when its policymakers meet again in two weeks’ time.

The ECB has dropped a series of heavy hints in the last couple of weeks that it will either increase or at least extend its plans for injecting money into the economy through bond purchases, and officials have also suggested that cutting the bank’s deposit rate, already set at a record low of -0.2%, is also possible. Speculation on such action has driven the euro down to as low as $1.06, close to a 12-year low.

Holger Schmieding, chief economist with Berenberg Bank, argued that underlying growth in the Eurozone is still decent, despite a very visible hit to manufacturing exports from emerging markets in the last couple of months. As a result of that, growth had slowed to 0.3% in the third quarter, despite very loose monetary policy and a weakening in the drag factor from budget consolidation.

We expect Q3 to be revised up a bit over time as more data on the comparatively resilient service sector becomes available,” Schmieding wrote in a note to clients.