Euro zone businesses end 2016 on a high, outlook brightens -PMI

[LONDON] Businesses in the euro zone ended the year on a high note, as expected, according to a survey that showed they achieved solid growth and raised prices at the steepest rate since the middle of 2011.

The upbeat survey will please policymakers at the European Central Bank, who in a surprise move last week trimmed their asset purchases but promised protracted stimulus to aid a still-fragile recovery and bolster weak inflation.

IHS Markit's Euro Zone Flash Composite Purchasing Managers'Index, seen as a good overall growth indicator, held steady at November's 53.9, which was the highest reading this year and comfortably above the 50-point line that indicates growth. That was in line with the median forecast in a Reuters poll. "It's a good reading. The forward-looking indicators are quite positive, putting a good start to the year on the blocks,"said Chris Williamson, IHS Markit's chief business economist.

Mr Wiliamson said the PMI pointed to the bloc's economy growing around 0.4 per cent this quarter, in line with a Reuters poll published earlier this month.

The growth upturn came as an output price index jumped to 51.4 from 50.6, its highest reading since July 2011.

Official data due on Friday are expected to confirm prices rose 0.6 per cent in the bloc last month, still nowhere near the ECB's 2 per cent target ceiling. "This was a big development in December - the intensification of inflationary pressures," Mr Williamson said.

Activity in the bloc's manufacturing increased at the fastest pace since April 2011. That PMI was 54.9, up from 53.7, way above even the most optimistic forecast of 54.1 in a Reuters poll of 34 economists.

An index measuring output, which feeds into the composite PMI, climbed to a 32-month high of 56.1 from 54.1.

Suggesting factories will start the new year in good shape, they built up backlogs of work at the fastest rate since April 2011. The sub-index climbed to 54.8 from 53.3 and a new orders index also jumped. "People are underestimating the impact the weaker euro is having. You have the twin impacts of increased export performance to non-euro countries, but also within the euro area you are getting more import substitution," Mr Williamson said.

However, growth in the bloc's dominant service sector slowed from November's 11-month high, with the PMI dipping to 53.1 from 53.8. That was below even the most pessimistic forecast in a Reuters poll, which predicted no change from last month.

Still, businesses were confident about the future and the business expectations index rose to an eight-month high of 63.6 from 61.9.

REUTERS