Euro zone businesses race into second-quarter on six-year high

[LONDON] Euro zone businesses raced into the second quarter, increasing activity at the fastest rate in six years in April, according to a survey on Thursday which suggested the bloc's economic recovery is broadly based and sustainable.

Activity expanded slightly faster than initially thought, and survey compiler IHS Markit said the data was consistent with a GDP growth rate of 0.7 per cent. Official data last Friday showed the bloc far outpaced the US economy in the first quarter of the year.

IHS Markit's final Composite Purchasing Managers' Index (PMI), regarded as a good guide to growth, rose to a six-year high of 56.8 in April from March's 56.4. An earlier flash reading had suggested a slightly shallower rise in activity. "Details continue to paint a positive picture - solid demand, rising capacity pressure, higher hiring intentions - also supported by the convergence in terms of countries," said Apolline Menut at Barclays.

Earlier PMI surveys covering the bloc's four biggest economies painted an encouraging picture.

Europe's largest economy is enjoying solid growth as although activity in Germany's services sector fell slightly it remained strong in April. French services activity only eased off March's near six-year high.

In Italy, service sector growth was at its fastest rate for almost a decade, while Spain's hit a 20-month high.

Adding to upbeat signs, euro zone retail sales increased for the third consecutive month in March and by more than market expectations, showing shoppers have so far not been deterred by rising prices, official estimates released on Thursday showed.

Pointing to continued solid expansion this month, growth in new business in April slowed only slightly from the six-year high set in March. The euro zone composite sub-index dipped to 55.9 from 56.2.

Matching an impressive performance reported by manufacturers earlier this week, firms in the service industry, which accounts for a far greater slice of the economy overall, also said growth was at a six-year high.

The services PMI rose to 56.4 from 56.0, hitting its highest since April 2011.

The increase in activity came despite firms raising prices again, albeit at a weaker rate than in March, when they ramped them up at the fastest rate in nearly six years.

Official data on Friday showed inflation rose more than expected in April, returning to the European Central Bank's target, but the ECB kept its policy stance steady last week, even leaving the door open to more easing.

But with growth and inflation stronger, pressure is mounting on the ECB to start dialling back its lavish stimulus. "The encouraging picture from the survey data is likely to help raise many forecasters' expectations of euro zone economic growth in 2017, and will also no doubt add to speculation that ECB rhetoric will turn increasingly hawkish," said Chris Williamson, chief business economist at IHS Markit.

REUTERS