A comprehensive study made by the financial information company Markit suggests a general increase in employment levels during March. Markit indicated it is the highest increase recorded in Europe in more than three years.
According to financial experts, the improvement is a result of European Central Bank’s combined efforts to weaken the European currency and stimulate production through a monthly €60 billion stimulus program.
“March saw the sharpest increase in new export orders since April 2014. Companies reported that the weaker euro was the main factor driving new export orders higher,” Markit’s chief economist Chris Williamson explained.
The ECB launched its quantitative easing program on March 9, pledging to invest more than €1 trillion ($1.07 trillion) to buy bonds until September 2016, in order to drive down inflation and get the European economy back on track.
The study showed that the weakening euro not only stimulated production by making exports more profitable, but also had a few negative effects. For instance, manufacturing costs also increased as a result of more costly imports, on which European companies rely heavily. However, prices for products made on the continent continued to decline, a sign that what Europe’s manufacturers gained from exports outweigh the extra money they spend on importing materials.
“Producers are benefiting from the weaker euro, which has had the dual effect of boosting competitiveness in export markets as well as making competing imports more expensive in the home markets,” Williamson believes.
Markit uses as an indicator for economic recovery the purchasing managers’ index (PIM), which as long as it stays above a value of 50 suggests economic growth. In case of European manufacturers, the PIM for March rose from 51.0 to 52.2, showing that the eurozone production is steadily expanding. More than that, the index recorded a 10-month high, a strong indicator that the EU’s economy is heading in the right direction.
Production din not increase equally for all European countries, some of them still struggling with the lingering effects of the recession. Germany leads the growth charts thanks to its car production giants. Spain and Italy, two of the countries worst hit by the debt crisis, all registered encouraging results in Markit’s analysis.
Manufacturers in Greece, on the other hand, don’t seem to reap the benefits of the ECB’s stimulus program. The government in Athens is still struggling to find a loan to solve the country’s liquidity problem, and the industry seems to suffer greatly while Greece’s economic future still hangs in balance.
The ECB is still hoping that higher prices for imported goods and services will help boost the inflation rate closer to the 2.0% value that the bank estimates is currently best for the economy. The euro has been weakening compared to the dollar for a while now, but this is the first time when economic output was boosted by the weaker European currency, indicating that the ECB strategy might actually be working.
Image Source: Irish Times