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Euro zone business activity better than expected in February

Written by Business World, on 21st Feb 2020. Posted in EU

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Business activity in the euro zone picked up more than expected this month, a business survey showed on Friday, in welcome news for policymakers at the European Central Bank who are trying to revive growth and chronically low inflation.

The euro zone's central bank has fallen short of its inflation target of just under 2% for years, even after increasingly aggressive stimulus, and growth has mostly remained tepid.

IHS Markit's Euro Zone Composite Flash Purchasing Managers' Index (PMI), considered a good gauge of economic health, rose to 51.6 in February from January's final reading of 51.3, beating all forecasts in a Reuters poll which had a median prediction of 51.0. Anything above 50 indicates growth.

The euro nudged up against the dollar and Germany's 10-year government bond yield rebounded from four-month lows after the stronger-than-expected numbers.

"Despite early signs of the impact from the coronavirus, the euro zone PMI improved in February. Green shoots in manufacturing were especially apparent in Germany, the epicenter of the manufacturing downturn," said Bert Colijn at ING.

A sister survey from Germany showed the private sector in Europe's largest economy expanded steadily in February. Growth in services activity slowed but still made up for an easing recession in manufacturing.

In France, the bloc's second-biggest economy, business activity expanded faster than forecast. A rebound in services following transport strikes at the end of last year helped offset a continued slump in manufacturing.

Britain's performance bettered the euro zone's for the second month running. Its PMI suggested the economy looked on track to grow around 0.2% in quarterly terms after it slowed to a crawl late last year.

Demand remained relatively strong on the continent, suggesting there won't be a deterioration next month. The euro zone new business index held at January's seven-month high of 51.3.

IHS Markit said the survey was consistent with GDP growth of 0.2%, matching the projection in a Reuters poll published this week.

The headline index was buoyed by a rise in the PMI for the bloc's services to a forecast-beating 52.8 from 52.5.

With demand resilient, demonstrating some confidence, companies took on more workers, albeit at a slower rate than in January. The employment index dipped to 52.6 from 53.0.

While a manufacturing PMI held below the break-even mark, it continued its upwards march. It rose to 49.1 from 47.9, its highest level in a year and ahead of all forecasts in a Reuters poll.

An index measuring output, which feeds in to the composite PMI, rose to 48.4 from 48.0.

Most forward-looking indicators in the survey moved in the right direction, suggesting the manufacturing recovery was on course and optimism remained elevated. The future output index only dipped to 57.9 from January's 17-month high of 59.8.

"There was some evidence that the coronavirus has taken its toll on the region's industrial sector. Meanwhile, the services PMI edged up, suggesting that the sector remains fairly resilient to the weakness in manufacturing," said Jessica Hinds at Capital Economics. (Reuters)

Source: www.businessworld.ie

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