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According to analysts from Wells Fargo, measures of business confidence have been overstating the strength of the Eurozone economy in 2017, but the disconnect between the “soft” and the “hard” data may be starting to narrow as industrial production in the Eurozone grew strongly in November.

Key Quotes: 

“A curiosity of the current economic expansion in the Eurozone has been the disconnect between “soft” and “hard” economic data. For example, the Ifo index of German business sentiment, which historically had a high degree of correlation with growth in German industrial production (IP), has soared to record highs in recent months. Yet, growth in IP has remained disappointing, at least in a historic context. Perhaps that disconnect is starting to narrow. Data released this week showed that German IP jumped 3.4 percent in November relative to the previous month. On a year-ago basis, IP was up 5.6 percent in November, the strongest growth rate in six years.”

“German statistical authorities also announced that preliminary estimates show that real GDP grew 2.2 percent in 2017. If confirmed by the more complete data that are scheduled for release next month, 2017 will have been the strongest year for German GDP growth since 2011.”

“Data released this week by other countries in the euro area were generally strong as well. IP in the overall Eurozone grew 1.0 percent in November, which followed the 0.4 percent rise in October. Retail spending in the euro area was up 1.5 percent in November relative to the previous month. The monthly data give us more confidence that our estimate for real GDP growth in the fourth quarter (0.6 percent sequentially, 2.5 percent year over year) is realistic.”