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European Markets at Close Report

Feb 27, 2017

The Guardian | Business | Business Live - Pound Under Pressure on New Brexit Worries February 27, 2017
Nick Fletcher
While consumer confidence declined somewhat in February as inflation rates have recently increased, businesses continue to see sentiment improve. In manufacturing, new orders continued to improve significantly, while also the assessment of recent production has improved. The exports component also improved, indicating that the manufacturing sector is profiting from the recent weakening of the euro. In services, assessments of recent demand have surged, with expectations for future demand increasing as well. This shows that the first quarter could come in stronger than expected.
One of the main reasons for the current economic strength is the tailwind from the labour market. Businesses are hiring at the fastest pace in years, which is also confirmed by this release of the economic sentiment index. In February, the pace of hiring increased further in manufacturing. In services, recent job growth was slightly weaker than in January, but employment expectations for the coming months increased.
This shows that employers seem unfazed by the uncertainty coming from the packed political agenda in the Eurozone. Consumers may be less unnerved, their expectations for general economic conditions and future unemployment chances weakened in February.
Consumers also indicated a jump in recent price growth. While this matches the headline inflation rate jump, their expectations of future price growth also increased in February. This is in line with selling price expectations increasing in manufacturing and remaining at a high level in services. The question becomes when these survey indicators are going to cause an increase in the core inflation rate, which has been stagnant so far. We expect that this starts to translate in slightly higher core inflation in the coming months, but nothing that will boost the core rate anywhere near 2% for now. The ECB will present their latest macroeconomic forecasts next month and it will be interesting to see whether the recent bout of strong indicators has impacted their core inflation forecasts.
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