Eurozone business growth at 9-month high, backed by services: flash PMI

BUOYANT growth in services helped the recovery in eurozone business activity to expand faster than expected this month, a survey showed.

S&P Global’s flash composite purchasing managers’ index (PMI) climbed to 52.3 in February from 50.3 in the previous month, data released on Tuesday (Feb 21) showed.

That was comfortably above 50, which is the point separating growth from contraction. February’s result also came in above all forecasts in a Reuters poll, where respondents on average predicted a more modest rise to 50.6.

Chris Williamson, chief business economist at S&P Global, said: “Business activity across the eurozone grew much faster than expected in February, with growth hitting a nine-month high, thanks to resurgent service-sector activity. February’s PMI is broadly consistent with gross domestic product rising at a quarterly rate of just under 0.3 per cent.”

The PMI is noted as a good gauge of overall economic health.

Demand increased for the first time since the middle of last year, and companies added to their headcounts, suggesting that the upswing could continue. The new business index rose to 50.6 from 48.9.

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Activity in the bloc’s dominant services industry grew this month at its fastest pace since June 2022, and the sector’s PMI bounced to 53 from 50.8, above all estimates in a Reuters poll and far exceeding the median estimate of 51.

With recession fears fading, optimism about the year ahead improved again in February. The business expectations index rose to a nine-month high of 61.5, from 61.2 in January.

However, factory activity declined at a slightly sharper pace this month. The manufacturing PMI dipped to 48.5 from 48.8. This confounded expectations in the Reuters poll for an increase to 49.3, and fell below all forecasts.

But an index measuring output, which feeds into the composite PMI, bounced to 50.4 from 48.9, marking its first time hitting above 50 since May 2022.

Input costs barely rose, and factories raised their selling prices at the slowest pace in almost two years. The output prices index fell to 58.3 from 61.6.

“The pandemic-related delivery delays that dogged factories over the past two years have given way to faster delivery times, in turn meaning pricing power is shifting from suppliers to factory purchasing managers, bringing industrial price inflation down,” Williamson said.

Signs of easing price pressures will likely be welcomed by policymakers at the European Central Bank (ECB), who have been aggressively raising borrowing costs in an attempt to rein in inflation.

Respondents in a Reuters poll last week predicted that the ECB would raise its deposit rate at least twice more, taking it to a terminal rate of 3.25 per cent next quarter. REUTERS