Although Continental Europe faces significant challenges, the eurozone’s economy appears to be picking up. The region’s manufacturing purchasing managers index (PMI), a key leading indicator of activity, in July ticked up above 50 for the first time in two years. PMI readings greater than 50 indicate an expansion in manufacturing activity, while index values less than 50 signal a contraction.
If this momentum continues, EU gross domestic product (GDP) could grow by up to 0.5 percent this year–welcome news after a prolonged period of economic contraction. At the very least, the eurozone economy appears to have bottomed.
The region’s economy should also benefit from various member states easing their austerity programs. France and Spain, for example, have pushed back the target date for achieving their fiscal goals by two years. At an April 22 conference in Brussels, European Commission President Jose Barroso acknowledged the social and political challenges of ongoing fiscal tightening in Europe, telling attendees that a successful policy “not only has to be properly designed, it has to have the minimum of political and social support.”