Source: Markit Economics

The Eurozone manufacturing and services sectors grew at the fastest pace in two years in November. Business activity has increased in each of the past four months.

The Markit Flash Eurozone Composite Output Index, based on around 85% of normal monthly survey replies, rose to a two-year high of 53.7 in November, up from the final figure of 53.0 in October. The recovery was again led by solid gains in manufacturing output, although the performance of the service sector also continued to strengthen.

Manufacturing production expanded for the fourth month running and at the fastest pace since September 2007. The service sector - - which exited recession later than manufacturing - - saw business activity increase for the third month running, with growth hitting a two-year peak.

November data pointed to a third successive month-on-month increase in new work received, although the rate of increase slowed slightly on October’s 23-month peak. Growth of new orders was signalled by both manufacturers and service providers, easing in both cases – though most notably in the service sector.

Despite the ongoing strength of the euro, the level of manufacturing new export orders increased in November to the greatest extent since the start of last year. Companies indicated that increased intra-area trade and improving global market conditions were the main factors driving growth of exports.

Employment fell for the seventeenth successive month in November. The rate of job losses was the weakest since August, and much slower than that generally seen in the first half of the year, but remained rapid by historical standards of the survey. Staffing levels decreased at manufacturers and services providers, with by far the steeper reduction again seen in manufacturing.

Backlogs of work declined for the twentieth month in a row, suggesting that spare capacity persists and headcounts may therefore have further to fall. The decline was focused on the service sector, with backlogs broadly unchanged in manufacturing (ending a nineteen-month period of sustained reduction).

Market reported that the survey also found that inflationary pressures continued to build in the Eurozone private sector. Input costs increased for the second month running, albeit only moderately, while selling prices were cut at the slowest rate seen in 2009 to date. Commodity prices were the main factor driving higher purchasing costs. Average vendor performance – an indicator of manufacturing supply-side price pressures - -  deteriorated to the greatest degree since September 2007.

Looking ahead, service providers’ confidence regarding levels of activity over the coming year dipped for a second month running and the manufacturing new orders-to-finished goods inventory ratio fell slightly on October. However, both of these forward-looking indicators remained high by survey standards and consistent with ongoing expansion in coming months.

Commenting on the flash PMI data, Chris Williamson, Chief Economist at Markit said: “The November survey suggests that the Eurozone continued to expand at a robust pace, raising hopes that GDP growth in the final three months of the year could outpace the 0.4% rise seen in the third quarter. However, we also saw the first signs of growth peaking, with the New Orders Index falling for the first time since it hit a record low in February. The sustained steep rate of job losses further highlighted the fragility of the recovery, reflecting an ongoing need to cut costs and uncertainty regarding the economic outlook.”

The Eurozone PMI (Purchasing Managers' Index) is produced by Markit Economics and is based on original survey data collected from a representative panel of around 4,500 companies based in the 16-country Eurozone's manufacturing and service sectors.