EU Economy
Eurozone recovery prospects brighten as France returns to growth
By Michael Hennigan, Finfacts founder and editor
Mar 24, 2014 - 9:23 AM

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The Eurozone economy continued to enjoy its strongest spell of growth since the first half of 2011 in March. The flash estimate of the Markit Eurozone PMI Composite Output Index came in at 53.2, only slightly lower than February’s 32-month high of 53.3 and registering expansion for the ninth consecutive month. France returned to growth in the month.

In a sign that activity growth could pick up again in April, new order growth accelerated marginally in March to the fastest since May 2011. Also encouraging was the biggest increase in backlogs of work since June 2011.

Employment likewise rose, albeit only marginally, up for a second month and providing the first signs of job creation since the end of 2011. The stabilisation of the job market contrasts markedly with the steep rate of job losses this time last year, highlighting the extent to which business confidence has been revived. Optimism about the year ahead in the service sector rose further in March, reaching its highest since May 2011.

Although services output growth moderated slightly since February, activity in the sector has now risen for eight months. Furthermore, new business growth accelerated slightly in March to the highest since June 2011, encouraging firms to take on more staff. Although only slight, the increase in service sector headcounts was notable in being the largest since December 2011.

Manufacturing output and new orders meanwhile both increased for the ninth successive month, at solid rates that were broadly unchanged from February. Factory employment rose for the third month running, though only very slightly as many firms continued to focus on boosting productivity to aid competitiveness.

Despite the upturn in business activity and new orders, the March survey also signalled a further moderation of price pressures. Input costs showed the smallest monthly rise for nine months, while prices charged by manufacturing and service providers fell on average to the greatest extent since last July. Lower prices were often attributed simply to the need to compete to win business.

The biggest change during the month was seen in France where output and new orders returned to growth, both showing the largest monthly improvements since August 2011. The largest gain in backlogs of work over the same period suggests that employment could start rising again in April. The rate of job losses eased in March to show a near-stabilisation of the French job market. Service sector optimism about the year ahead meanwhile held close to February’s 23-month high.

Germany, in contrast, saw output growth slow to a four-month low, easing in both manufacturing and services. The rate of expansion nonetheless remained solid, finishing off the best quarter of growth since the second quarter of 2011. With employment across both manufacturing and services rising for a fifth straight month and service sector optimism remaining strong, German companies look set for further robust growth in the coming months.

Excluding France and Germany, the rest of the eurozone saw output and new orders rise for the eighth month running. In both cases the rate of increase moderated slightly from February’s peaks.

Commenting on the flash PMI data, Chris Williamson, chief economist at Markit said: "The ongoing upturn in business activity in March rounds of the eurozone‟s best quarter since the second quarter of 2011. The survey is signalling a 0.5% increase in GDP in the first quarter, building on the 0.3% increase seen in the final quarter of last year.

"Germany looks set to have grown by 0.7% in the first three months of the year, spearheading the region‟s upturn despite its PMI slipping lower in March. However, perhaps the best news this month is the sign of the region‟s upturn spreading to France. While the PMI is consistent with a mere stabilisation of the French private sector economy in the first quarter, the improvement in the PMI to a two-and-a-half year high in March adds to hope that a fully-fledged recovery will be evident in France by the second quarter.

"The rest of the region also enjoyed its best quarter for three years, providing further evidence that the „periphery‟ is staging a robust-looking recovery.

"Policymakers will be encouraged by the survey in terms of the signs of sustained recovery. However, concerns will persist regarding the deflationary forces, especially in the periphery. With prices charged by manufacturers and service providers both falling again in March, there remains an argument for further stimulus, especially if the rate of growth of activity cools again in April."

The Eurozone PMI (purchasing managers' index) is produced by Markit and is based on original survey data collected from a representative panel of around 5,000 companies based in the Eurozone manufacturing and service sectors.

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