Eurozone remains on track

The macroeconomic backdrop at the turn of the year confirms that the euro zone is holding up better than other regions as well as being the region where economic sentiment is picking up further. In particular, the economic newsflow out of Germany and Italy, as measured by the PMI indices for December, surprised on the upside, both for manufacturing (industry) and service sectors. At 10.5%, the unemployment rate for November in the euro zone declined to a 4-year low.

Over the months ahead, both the progress of the Italian economy and the resilience of the German industrial sector will be worth following. Within the region, the outcome of the Spanish general election on 20 December has increased political uncertainty as it marks the end of 40 years of bipartism and a coalition has to be formed. The Catalonian independence question will remain centre-stage in the Spanish political debate, relegating the need for further reforms to second in order of importance. Across the Channel, UK PMIs weakened in both manufacturing and services. The political debate ahead of the EU referendum in the UK represents additional uncertainty.