Outlook on the Eurozone

Through October, the Eurozone’s economy grew at the fastest pace of the year. The rally in in United Kingdom government bonds and a higher chance of inflation has caused 10 year government bonds in the UK to now yield more than double the levels they did in August. Due to the interconnected global bond markets, the yields in Eurozone bonds rose as a result. The raise eased pressure on the European Central Bank, whose quantitative easing program prevents it from buying any debt that yields under the deposit rate of -0.4 percent.

The purchasing managers’ index is used to assess the health of a region’s economy, and the figure should be above 50, which separates an expansion from a contraction in activity. The Eurozone increased to 53.7 which was a 1.1 raise from September. Another sub- index that is closely watched tracks the prices that are charged by businesses to their customers, made the largest jump over the past 5 years.

The uptick of both indices indicated that the Eurozone economy is becoming stronger, and will likely play a role in the ECB’s decision for the future of its quantitative easing program. The ECB is looking to expand the existing quantitative easing program, and although the program is planned to continue to until March, future plans will be announced by year- end. The ECB is expecting that the bond purchases would continue to protect the recovery and increase inflation rate from its current .4 percent till it reaches the target of close to but below 2 percent. A source of concern is that although the activity levels continued to rise in the region overall, the growth was not evenly spread between all the members of the Eurozone.