Eurozone Growth Near 6-Year High

Eurozone private sector business activity rose at its quickest pace in nearly six years in February, accelerating across all major economies with job creation reaching its fastest in almost a decade, surveys showed on Friday.

The data, which came alongside news on Thursday that eurozone inflation had just surpassed the European Central Bank's target, could pose a challenge to policymakers in how to explain leaving monetary policy unchanged even as the economy picks up sharply, Reuters reported.

IHS Markit's final composite Purchasing Managers' Index—seen as a good overall growth indicator—rose sharply to 56.0 in February from 54.4 in the previous month. It has not been higher since April 2011 and was unchanged from a flash estimate.

While separate official data showed German retail sales unexpectedly dropped in January, the PMIs showed that February private sector services activity in Europe's four largest economies Germany, France, Italy and Spain all improved.

"The PMIs tell you that the economy is on a reasonably solid footing, obviously the economy is not roaring away to the extent that some of the other Anglo-Saxon economies have done over the course of recent years, but it is a pretty good place to be," said Peter Dixon, economist at Commerzbank.

The reports suggest that rising concerns about potential upsets in coming eurozone elections, particularly the prospect of far-right leader Marine Le Pen posing a serious challenge for the presidency in France, are being shrugged off by the economy.

"We don't quite know what will happen in France following the election in April-May and that is probably the single biggest risk that the continent faces," Dixon added.

If sustained, economic growth could hit 0.6% in the first quarter, according to Markit. That would be much faster than the 0.4% economists predicted in a Reuters poll just last month. That forecast was based on hopes that there would be no major upsets in several national elections this year.

Optimism on the Rise

"The final PMI numbers paint a bright picture of a eurozone economy starting to fire on all cylinders. Growth accelerated in all of the four largest member states in February to suggest an increasingly sustainable and robust-looking upturn," said Chris Williamson, chief business economist at IHS Markit.

The reports suggest optimism is on the rise, eurozone companies are raising prices for their services, and crucially, they are beginning to hire again. The composite PMI employment index rose to 53.8 from 53.4, its highest since October 2007.

Business expectations indexes for the services sector and for all industries improved at the fastest rate in nearly six years.

Manufacturers, too, enjoyed their best month in nearly six years in February, boosted by a weaker euro, which helped drive strong demand for exports, a similar survey showed on Wednesday. The euro is expected to ease a bit further, according to a Reuters poll of currency strategists.