Signs ECB stimulus is reaping rewards

Eurozone manufacturing and services activity strengthened in a sign of confidence that fresh stimulus by the ECB will consolidate a fledgling economic recovery.

A Purchasing Managers Index for both industries jumped to 54 in July from 52.8 in June, matching a three-year high reached in April, London-based Markit Economics said. That’s the 13th month the gauge has exceeded 50, the mark that signals expansion.

The pick-up comes after policymakers introduced a negative deposit rate and targeted loans to bolster lending, growth and an inflation rate running at a quarter of the ECB’s goal. While risks to the economic outlook have increased with escalating tensions in the Middle East and Ukraine, strengthening manufacturing in China bodes well for export demand.

While “the recovery has some underlying momentum,” there is “no reason to become overly optimistic,” said Peter Vanden Houte, chief eurozone economist at ING in Brussels. “Monetary policy will have to remain extremely accommodative for a long time to come”

Looming headwinds may include intensifying tensions in Israel and new sanctions proposed against Russia after a Malaysian jet was shot down over rebel-held territory in eastern Ukraine, as well as a looming banking crisis in Portugal and a disappointing economic performance in Franc.

For now though, today’s data provide “some much-needed and welcome good news,” said Howard Archer, IHS Global Insight in London.


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