Figures recently released showed that business activity in the Euro zone grew at the fastest pace in 2016 last month, helped by strong rebound in the German economy.
Initial reading of the IHS-Markit Purchasing Managers’ Index for the euro zone rose to 53.7 in October, the market information firm announced on Monday.
The initial estimate, which represents the highest monthly rise seen since the beginning of the year, marks a significant improvement on the reading of 52.6 for September. It also surpassed expectations of analysts, who had predicted a slightly-improved reading of 52.8.
The data released showed that the manufacturing and services sectors in the Euro zone are on the upward curve, somewhat dampening investors’ concerns about slowing growth in the region.
“The euro zone economy showed renewed signs of life at the start of the fourth quarter, enjoying the strongest expansion so far this year with the promise of more to come,” Chris Williamson, HIS Markit’s chief business economist, said in a release. “With backlogs of work accumulating at the fastest rate for over five years, business activity growth and hiring look set to accelerate further as we head towards the end of the year.”
However, a divergence in fortune was noticed between the two largest economies in the bloc, based on data released earlier on Monday. While business activity grew strongly in Germany, significantly boosting the Euro zone PMI, the story was different in France.
The German economy reversed the disappointing trend observed in September data, posting the best performance in three months. Its flash PMI composite output index was 55.1 in October, a significant improvement on the 16-month low reading of 52.8 recorded in the previous month.
IHS-Markit Economist Oliver Kolodseike noted that the PMI reading raises expectation that the weaker readings of the past two months “were just a temporary patch, rather than the beginning of a serious slowdown.”
In France, the PMI stood at 52.2 in October, down from 52.7 in the month before. The reading was dragged down by a weakening services sector despite a 10-month high PMI of 51.3, up from 49.7, for the country’s manufacturing sector.
Williamson said the initial October readings point to an expansion of 0.4 percent in the Euro zone’s quarterly output. The German economy is expected to expand by a region-high 0.5 percent. France’s economy, which shrunk by 0.1 percent in the second quarter, may grow by 0.2 percent to 0.3 percent.
The divergence in the level of growth in the Euro zone has raised concerns among analysts and policymakers that the currency bloc is excessively dependent on Germany for growth.
Stephen Brown, European economist at Capital Economics, said in a note that the divergence between the zone’s two largest economies makes it important for the European Central Bank to still “do more to bring inflation back towards its target on a sustained basis across the euro-zone.”
Last week, ECB President Mario Draghi said at a press conference that the bank has no intention of ending its quantitative easing program yet. It is no longer certain whether the program would still end as earlier scheduled in March 2017.