Business activity in the euro zone has grown faster than expected this month as new orders flood in at their fastest pace in over two years, surveys showed today, adding to signs that the economy is healing.
The surveys suggest the region’s economic recovery was becoming more broad-based with growth in both Germany and France, the bloc’s two largest economies.
Markit’s Flash Composite Purchasing Managers’ Index (PMI) jumped to 52.1 from last month’s 51.5, its highest since June 2011 and beating expectations for 51.9.
The pace of growth in the euro zone’s dominant services sector beat all forecasts. The PMI came in at 52.1, well ahead of August’s 50.7 and comfortably above median expectations for a more modest rise to 51.
A reading above 50 indicates growth, while under 50 signals contraction in a sector.
“These surveys show a real underlying swell of improvement. It’s all looking very positive,” said Chris Williamson, chief economist at Markit.
Businesses in Germany, Europe’s largest economy, expanded at a faster pace than last month and in France, the euro zone’s second biggest economy, activity increased – albeit marginally – for the first time in 19 months.
New business in the euro zone increased again this month, according to the composite sub-index, which rose to 51.6 from 51, pushing business expectations among services firms to an 18-month high.
Williamson said the composite PMI, which surveys thousands of companies across the region and is seen as a good guide to economic growth, pointed to a 0.2% expansion this quarter. ”Although there are still risks to the euro zone economy, there’s certainly nothing here to suggest any chance of a return to recession soon,” Williamson said.
Manufacturing activity eased this month but firms were able to pass on rising input costs to customers. The PMI dipped to 51.1 from August’s 26-month high of 51.4. A sub-index measuring output fell to 52.1 from 53.4. A Reuters poll had predicted a rise to 51.8.
Williamson noted that the earlier upturn was probably exaggerated by a bounce-back resulting from better weather and a jump in car production. The cost of materials used by factories increased for the first time in eight months but manufacturers passed on some of this to customers. The output price index rose to 50.8 from 49.6.
Inflation fell to 1.3%in August, well below the European Central Bank’s target of close to but below 2%, warranting the bank’s pledge to keep interest rates at current levels or lower for an extended period of time to help the recovery.
ECB President Mario Draghi said last week the euro zone economy, which ended its recession in the second quarter, remained “fragile”, and unemployment was “still far too high”.
Today’s services PMI showed firms held staffing levels steady last month, with a reading of 50. Unemployment remained at a record high of 12.1% in July, with a sharp contrast between countries such as Germany and Spain.