Eurozone growth could surprise on the upside in H2 '16

September economic data from the Eurozone showed resilience, in line with rhetoric from ECB president Mario Draghi suggesting that the Euro-Zone is showing signs of a modest recovery. Economists expect Eurozone growth could surprise on the upside in H2 2016. However, uncertainty surrounding the economic projections still remain high as the Brexit withdrawal negotiations, which are set to begin next year, may affect economic sentiment.

The Euro area manufacturing PMI figure for September rebounded towards pre-Brexit vote level and order-inventory balance, a leading indicator for manufacturing PMI, increased to the highest level since 2010 indicating that going forward the manufacturing PMI will increase considerably. Service PMI continued the downward trend but kept above 50 signalling healthy GDP growth. 

Consumer confidence for September also revealed a modest increase which points to continued solid growth in private consumption. Data released earlier today showed that economic sentiment index in September bounced back in both the euro area and the European Union after three months of negative or flat developments. Sentiment in the services sector, which generates two-thirds of the euro zone's GDP, rose to 10.0 in September. The European Commission noted that sentiment improved the most in the biggest eurozone economies - Germany, France, Italy, Spain and the Netherlands. 

"Our forecast for GDP growth is 1.5% in 2016 and 1.1% in 2017 with the latter mainly reflecting an expected weak start to the year. We see some downside risk to our 2017 forecast as the political events including the Italian constitutional referendum later this year, and the parliamentary and presidential elections in Germany, France and the Netherlands in 2017 could have a negative impact on the euro area economy." Danske Bank notes in a report to clients.

Economic sentiment is an early indicator of economic activity, signalling trends in gross domestic product growth. Survey found that households expected prices to rise more rapidly over the coming 12 months than they did in August, while businesses also expect to raise their prices more rapidly suggesting a positive boost to inflation as well. The improved economic situation in the euro area supports the ECB’s slightly hawkish stance expressed at the latest meeting in early September. 

EUR/USD is extending upside after bounce off 20-DMA on Wednesday's trade. The major was 0.04 percent higher on the day, trading at 1.1222 at around 12:00 GMT.