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News : EU Economy Last Updated: Feb 20, 2015 - 9:28 AM


Growth of Eurozone business activity at seven-month high in February
By Michael Hennigan, Finfacts founder and editor
Feb 20, 2015 - 9:24 AM

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Growth of business activity in the Eurozone economy hit a seven-month high in February, according to the ‘flash’ reading of the Markit Eurozone PMI (purchasing managers' index). The survey’s Composite Output Index rose from 52.6 in January to 53.5.

The flash reading is an early run of the survey data, typically calculated one week before the full ‘final’ results and usually incorporating around 85% of total monthly survey responses.

Growth of business activity has now accelerated for three successive months, having almost stalled back in November, driven higher by stronger demand. New orders also grew at the sharpest rate for seven months in February.

Companies often struggled to cope with the increased inflows of new business, meaning backlogs of uncompleted orders rose for the first time since last April. The rise was the largest since May 2011.

With backlogs of work accumulating, and demand showing signs of picking up, firms took on extra staff at the fastest rate since August 2011.

Faster growth was seen in both manufacturing and services, where factory output and business activity measures hit seven-month highs. Services continued to see the stronger pace of expansion of the two sectors, with manufacturing growth remaining relatively subdued.

Inflows of new business into the service sector were also stronger than seen in manufacturing, with the latter recording only a marginal upturn in new orders (though still the best monthly improvement since last July).

Markit said Forward-looking indicators bode well for a further upturn in March. Expectations of business activity in the year ahead in the service sector rose to the highest since May 2011, and the new orders-to inventory ratio in manufacturing hit a seven-month peak. The latter suggested that factories will step up production to ensure orders can be fulfilled.

 

On the inflation front, lower oil prices were again cited as a major contributor to lower overall input costs, which fell for the second month running. The rate of decline eased, however, resulting in only a marginal drop in costs. A modest rise in service sector costs, often linked to higher wages, served to partly offset a marked drop in manufacturing input costs, though even here the rate of decline eased during the month.

Average selling prices fell at a reduced rate compared to January, which had seen the largest decline for almost five years. But the ongoing decline means prices charged by service providers and factories have now fallen continually on average for almost three years.

By country, an increasingly robust upturn was recorded in Germany while France enjoyed its best month of growth since August 2011, but growth elsewhere across the region eased.

Germany saw growth accelerate for the third month in a row, though the upturn was very much dependent upon its services economy. Manufacturing output growth, in contrast, slowed slightly. While German service sector firms took on staff at the fastest rate since December 2011, employment growth more or less stagnated at their manufacturing counterparts.

France saw its first upturn in business activity since April of last year, with growth hitting the fastest since August 2011. A strong upsurge in service sector activity was countered, however, by a steepening downturn in manufacturing. A marginal rise in employment was also seen in France, the first such increase since October 2013, reflecting increased service sector hiring.

Of note, average selling prices fell at the fastest rate since October 2009 in France, contrasting with higher prices in Germany.

Outside of France and Germany, the region as a whole saw business activity rise markedly once again, although the rate of expansion slowed from January’s six-month high. Job creation nevertheless rose to the joint-highest seen since the global financial crisis struck.

Commenting on the flash PMI data, Chris Williamson, chief economist at Markit said:  "February’s PMI surveys paint an upbeat picture of improving Eurozone economic health. Undeterred by the ongoing Greek debt crisis, economic growth is gathering momentum and looks set to gain further traction in coming months. The economy is on course to grow by at least 0.3% in the first quarter, assuming March doesn’t disappoint.

"Even more encouraging is the faster rate of job creation reported during the month. Employment is now rising at the steepest rate since 2011 as employers become increasingly confident in the outlook and eager to take on staff to meet rising demand.

"With the ECB’s quantitative easing ‘bazooka’ due to start in March, business optimism has been boosted to its highest for three-and-a-half years.

"Growth is looking lop-sided, however, and very much dependent on the services economy where lower prices are fuelling growth, especially in consumer-facing sectors. The weakness of the manufacturing economy remains a major concern.

"A key development this month is that France is no longer languishing in stagnation. The region’s second-largest economy is now seeing the strongest growth since mid-2011, with French consumers apparently awakened by lower prices."

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