Eurozone activity strong despite Brexit, says survey

Economy maintained its resilience with a strong showing from France as well as powerhouse Germany

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Eurozone economic activity edged higher in August with few signs that Brexit-linked dangers were yet hurting the European economy, a closely watched survey showed on Tuesday.

Data monitoring company Markit said the eurozone economy maintained its resilience despite Britain's shock vote to leave the EU, with a strong showing from France as well as powerhouse Germany.

Markit said the preliminary August reading for its Composite Purchasing Managers Index (PMI) for the eurozone rose to a seven-month-high of 53.3 points, up from 53.2 in July.

The PMI measures companies’ readiness to spend on their business and so gives a good idea of how the underlying economy is performing before official statistics are compiled and released.

Any reading above 50 points indicates the economy is expanding.

Steady growth

Markit chief economist Chris Williamson said the eurozone economy “remains on a steady growth path in the third quarter, with no signs of the recovery being derailed by ‘Brexit’ uncertainty.”

Williamson said the better-than-expected August figures suggested the eurozone economy was growing at “1.2 per cent (over 12 months), which is similar to that seen on average over the first half of the year.”

The IMF said last month that eurozone growth this year would hit a stronger-than-expected 1.6 per cent, instead of the previously forecast 1.5 per cent.

The fund warned however that growth in the currency bloc would drop to 1.4 per cent next year as the Brexit effects kicked in.

Howard Archer of IHS Insight said the “PMI data are pretty reassuring, suggesting that Eurozone economic activity is - for now at least - not being hampered by the UK’s shock Brexit vote.”

Nevertheless, the data “by no means give the all clear on Eurozone growth prospects as there were mixed developments”, including slowing employment and lower growth in new orders by businesses, he added.

The preliminary German composite index fell to a still strong 54.4 points. France’s PMI jumped to 51.6 points, the struggling economy's sharpest rise in 10 months.

The survey will also influence policy at the European Central Bank, which has signalled that it could step up stimulus if Brexit headwinds worsened.

“The ECB is still likely to ease (policy) eventually, but resilient PMIs should buy them more time until December,”said Frederik Ducrozet, economist at Pictet Bank in Geneva.

ECB president Mario Draghi said last month that the bank was “ready, willing and able “to intervene if necessary.

“There currently does not appear to be a decisive case for September action,” said Archer.