LONDON (Reuters) – Buoyant services growth meant the recovery in euro zone business activity gathered steam this month, expanding much faster than thought, according to a survey providing the latest evidence the currency union could escape a recession.
S&P Global’s flash Composite Purchasing Managers’ Index (PMI), seen as a good gauge of overall economic health, climbed to 52.3 in February from January’s 50.3, data showed on Tuesday.
That was comfortably above the 50 mark separating growth from contraction and above all forecasts in a Reuters poll which had predicted a more modest rise to 50.6.
“Business activity across the euro zone grew much faster than expected in February, with growth hitting a nine-month high thanks to resurgent service sector activity,” said Chris Williamson, chief business economist at S&P Global.
“February’s PMI is broadly consistent with GDP rising at a quarterly rate of just under 0.3%.”
Suggesting the upswing could continue, demand increased for the first time since mid-2022 and firms again added to headcount. The new business index rose to 50.6 from 48.9.
Activity in the bloc’s dominant services industry grew this month at its fastest pace since June and its PMI bounced to 53.0 from 50.8, above all estimates in a Reuters poll and far exceeding the median estimate for 51.0.
With recession fears fading, optimism about the year ahead improved again in February. The business expectations index rose to a nine-month high of 61.5, from 61.2 in January.
However, factory activity declined at a slightly sharper pace this month. The manufacturing PMI dipped to 48.5 from 48.8, confounding expectations in the Reuters poll for an uptick to 49.3 and below all forecasts.
But an index measuring output, which feeds into the composite PMI, bounced to 50.4 from 48.9, its first time above 50 since May.
Input costs barely rose and factories raised their selling prices at the slowest pace in almost two years. The output prices index fell to 58.3 from 61.6.
“The pandemic-related delivery delays that dogged factories over the past two years have given way to faster delivery times, in turn meaning pricing power is shifting from suppliers to factory purchasing managers, bringing industrial price inflation down,” Williamson said.
Signs of easing price pressures will likely be welcomed by policymakers at the European Central Bank who have been aggressively raising borrowing costs in an attempt to rein in inflation running well above its target.
A Reuters poll last week found the ECB will raise its deposit rate at least twice more, taking it to a terminal rate of 3.25% next quarter.
(Reporting by Jonathan Cable; Editing by Susan Fenton)
