Euro zone economy races into Q2 with bumper growth

Updated 21 April 2017
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Euro zone economy races into Q2 with bumper growth

LONDON: The euro zone economy bounded into the second quarter with strong broad-based growth, according to a survey showing businesses increased activity at the fastest rate for six years as new orders stayed robust.
Signs the bloc is on a sustainable growth path, along with inflationary pressures, will be welcomed by the European Central Bank (ECB), which has struggled for years to achieve either, despite the ultra-loose monetary policy. Consumer confidence is also improving.
IHS Markit’s Flash Composite Purchasing Managers’ Index (PMI), seen as a good guide to growth, climbed to 56.7 from March’s 56.4, its highest since April 2011. A reading above 50 indicates growth.
That matched the most optimistic forecaster in a Reuters poll in which the median prediction was a dip to 56.3.
“April’s rise in the euro zone composite PMI adds to evidence that the economy is performing well,” said Jennifer McKeown, chief European economist at Capital Economics.
IHS Markit said the latest PMI data, if maintained, pointed to the second-quarter economic growth of 0.7 percent, well above the 0.4 percent predicted in a Reuters poll on Thursday.
“There is a good outlook for the year — it looks like the upturn has legs. With numbers like these, people are going to start edging up their forecasts,” said Chris Williamson, the chief business economist at IHS Markit.
Earlier data from Germany showed its private sector grew at a slower pace this month as services shifted into a lower gear but factory activity remained high, suggesting Europe’s biggest economy is carrying its upswing into the second quarter.
French business activity confounded expectations in April by growing at the fastest pace in nearly six years, showing no signs of cooling down just days before the most uncertain presidential election in years.
Although no major survey sees her winning, far-right and anti-EU leader Marine Le Pen is polling strongly. None of the economists polled by Reuters this week said she would be best for French economic growth.
“Even though on the eve of the first round of the French elections a good portion of caution is recommendable, the evidence is piling up that the euro zone economy could become the positive growth surprise of the year,” said ING chief economist Carsten Brzeski.
Providing further evidence the recovery will continue, a sub-index measuring new business in the euro zone only dipped to 55.8 from March’s six-year high of 56.2.
Firms in the bloc’s dominant service industry increased activity faster this month, with its PMI rising to 56.2 from 56, a six-year high. That was above all forecasts in a Reuters poll, where the median predicted no change.
To meet the growing demand, and indicating confidence about the months ahead, hiring remained vigorous. The employment index held steady at 54.4, its highest since November 2007.


Costa Coffee to go solo pressed by investors

Updated 32 min 30 sec ago
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Costa Coffee to go solo pressed by investors

LONDON: Latte king Costa Coffee is to go it alone following pressure from activist shareholders on Whitbread, the global coffee chain’s parent company, a statement said Wednesday.
UK company Whitbread, which will hold onto hotel chain Premier Inn, said the spin-off is part of a restructuring drive that is set to be completed within two years.
“Given the progress Whitbread is making, we are confident that both Premier Inn and Costa will soon be businesses of sufficient strength, scale and capability to enable them to thrive as independent companies,” Whitbread chief executive Alison Brittain said in the statement.
“The board, therefore, believes that it is in the best long-term interests of Whitbread’s many stakeholders to separate Premier Inn and Costa, via a demerger of Costa,” she added.
Analysts welcomed the move.
“A cleaner operation should enable greater operational focus and afford investors greater clarity on profit and cash generation,” said analyst Greg Johnson at Shore Capital.
Whitbread’s announcement comes after activist investor, US group Elliott last week became its biggest shareholder with a six percent interest.
“The question will of course arise over whether CEO Alison Brittain jumped or was pushed into this proposal by the arrival of two activist investors on the shareholder register,” said Laith Khalaf, senior analyst at Hargreaves Lansdown stockbrokers.
Whitbread bought Costa in 1995 from founders Sergio and Bruno Costa and presently runs about 2,400 stores in the UK and some 1,400 around the world.
Its shops are popular with a wide array of coffee lovers, ranging from students in London, to journalists and Beirut, and tourists in Paris.
Premier Inn has 785 hotels in the UK plus some more in Germany and the Middle East.