Analysts at BBH explain that the drumbeat of favorable Eurozone data continued as the May flash PMIs suggest another strong quarter of growth.
Key Quotes
“The composite for the region was unchanged at 56.8, matching the multi-year high. Manufacturing was a bit stronger than expected at 57.0 (vs. 56.7 in April), while services were a little softer at 56.2 (from 56.4).”
“While the composite readings of both Germany and France rose, the details were different. In France manufacturing slipped (54.0 vs. 55.1) while services improved (58.0 vs. 56.7). In Germany, manufacturing improved (59.4 vs. 58.2), while service activity eased (55.2 vs. 55.4). Separately, German reported IFO survey results which also firmed. Business confidence is at its highest level since 1991.”
“As we have noted, the problem the Eurozone faces now is not growth. In fact, that has not been the chief problem for more than a year. Rather, as Draghi and others have pointed out, the challenge is that price pressures do not show a sustainable path toward the ECB's target. To argue that the growth alone warrants a hike misunderstands the ECB's approach. The ECB does not target growth or employment directly, but rather than as single mandate price stability, defined as near but under 2%. And in fact, prices in the PMI slipped for the first time in 15 months.”
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