Eurozone recovery gathers pace, allays fears of recession

THE recovery in eurozone business activity gathered pace last month as growth accelerated in the bloc’s dominant services industry, a survey showed, providing the latest piece of evidence suggesting the currency union will avoid a recession.

S&P Global’s Composite Purchasing Managers’ Index (PMI), seen as a good barometer of overall economic health, climbed to an eight-month high of 52.0 last month from 50.3 in January, a little shy of a 52.3 preliminary reading.

February marked its second straight month above the 50 mark separating growth from contraction.

“A resounding expansion of business activity in February helps allay worries of an eurozone recession, for now,” said Chris Williamson, chief business economist at S&P Global.

“There are clear signs that business confidence has picked up from the lows seen late last year, buoyed by fewer energy market concerns, as well as signs that inflation has peaked and recession risks have eased.”

The future output index, a gauge of optimism about the year ahead, rose to 61.2 in February from 60.4, its highest reading in a year.

A PMI covering the services industry jumped to 52.7 from 50.8, just below the 53.0 flash reading.

Demand picked up and firms were able to build up a backlog of work for the first time since October. The new business index bounced to 52.2 from 50.1.

With demand strong business across the region raised prices again, albeit at the slowest pace in over a year.

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“There is a concern, however, that signs of persistent elevated selling price inflation, combined with the surprising resiliency of the economy, will embolden the ECB into more aggressive monetary policy tightening, which poses a downside risk to demand growth in the months ahead,” Williamson said.

Another 50 basis point increase to the European Central Bank’s deposit rate this month is a done deal, according to economists polled by Reuters, who expected an additional 25 basis point lift next quarter to give a terminal rate of 3.25 per cent.