A pickup in services in February propelled French private-sector growth to the fastest pace in almost six years.
A pickup in services in February propelled French private-sector growth to the fastest pace in almost six years.

EU Recovery Accelerates

Inflows of new orders and surging optimism among firms point to a potentially stronger expansion in the coming months

EU Recovery Accelerates

Eurozone economic activity unexpectedly rose to the highest level in almost six years in February as the region’s recovery became more broad-based and inflationary pressures continued to intensify.
A composite Purchasing Managers’ Index climbed to 56.0 from 54.4 in January, putting the region on track for quarterly growth of 0.6%, IHS Markit said on Tuesday. Economists predicted the gauge would slip to 54.3. Inflows of new orders and surging optimism among firms point to a potentially stronger expansion in the coming months, the London-based company said, Bloomberg reported. 
“Companies are currently firmly focused on expanding in the face of rising sales and fuller order books,” said Chris Williamson, chief business economist at IHS Markit. “The ECB will be cheered by the signs of stronger growth and further upturn in price pressures, though will no doubt remain concerned that elections and Brexit could disrupt the business environment this year.”
The European Central Bank has committed to continue asset purchases until at least the end of the year to underpin the region’s firming recovery amid political risks. While a swath of data—including inflation—has signaled that the economy may be stronger than expected, stoking calls for an exit from unconventional policy, ECB President Mario Draghi has repeatedly argued that significant stimulus is still needed.
IHS Markit noted that a key difference between the German and French recoveries in February was prices. Whereas both saw input costs rising by the most since mid-2011, French firms didn’t pass these costs on to customers, while German output prices showed the largest monthly increase since June 2011.

Output in Germany, Europe’s largest economy, accelerated in February as goods production and services activity gained momentum.
A composite PMI climbed to 56.1 from 54.8 in January, the strongest reading in almost three years, IHS Markit said. Economists predicted the gauge would remain unchanged. Gains in manufacturing were the highest in almost six years, while services “rose solidly”.
“The latest PMI data are encouraging following the slightly weaker-than-expected preliminary estimate of GDP growth” last quarter, said Trevor Balchin, a senior economist at the London-based company. “That said, this figure was influenced by strong imports and could understate underlying momentum. The latest PMI adds to our expectations that economic growth will strengthen in the first quarter.”
The German economy expanded 0.4% in the final three months of 2016, but a flurry of data have pointed to stronger overall momentum as unemployment hit a record low at the start of the year and price gains accelerated. The Bundesbank sees growth picking up in the first quarter on the back of higher exports and a long-awaited recovery in the global economy.
The outlook of private-sector companies improved to the highest level since data were first collected in 2012, IHS Markit said.

A pickup in services in February propelled French private-sector growth to the fastest pace in almost six years.
A composite PMI climbed to 56.2 from 54.1 in January, IHS Markit said. That’s the eighth consecutive reading above the 50 mark that divides expansion from contraction and above an economist estimate for 53.8. A gauge for services rose to the highest level since mid-2011, while a measure for manufacturing was unchanged.
“Service providers remained the driver of overall growth, as evidenced by further sharp expansions in new orders and employment, the sharpest in five-and-a-half years in each case,” said Alex Gill, an economist at the London-based company. “The picture was also positive for manufacturers, albeit slightly less rosy. Rates of increase in client demand and staffing numbers eased from January as the sector continues to be weighed down by marked cost pressures.”
France’s economic recovery has lagged that of the eurozone in recent years, leaving unemployment stuck at about 10% and hampering the ability of President Francois Hollande to trim the budget deficit. 

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