February 5, 2018 / 9:15 AM / 10 months ago

Euro zone businesses start 2018 in best shape for over a decade - PMI

Euro zone businesses began 2018 by increasing activity faster than at any time in well over a decade as new orders surged despite firms raising prices at the steepest rate in almost seven years, a survey showed.

Two Euro coins are seen at the Money Service Austria company's headquarters in Vienna, Austria, November 16, 2017. REUTERS/Leonhard Foeger/Files

The euro zone emerged as one of the best-performing major economies last year. Forward-looking indicators in the survey suggest that momentum will continue for at least another few months - welcome news for the European Central Bank as it moves to unwind policy.

IHS Markit’s Final Composite Purchasing Managers’ Index, seen as a good overall growth indicator for the euro zone, rose to 58.8 in January from December’s 58.1 and up from the flash estimate of 58.6.

It is now at its highest since June 2006 and well above the 50 mark that separates growth from contraction.

“The optimism reflects the strong economic upturn that the euro zone is experiencing, which continues to be broad-based and is set to continue in the months ahead,” said Bert Colijn at ING.

“Backlogs of work are increasing, job creation is historically very strong and new orders continue to pour in. This makes for a rosy growth outlook.”

Earlier figures from Germany, Europe’s biggest economy, showed private sector growth was at a near seven-year high while in France the business boom showed no sign of abating in January.

However, investor morale in the bloc deteriorated this month over discontent with coalition negotiations between German Chancellor Angela Merkel’s conservatives and the centre-left Social Democrats (SPD).

Still, Italian business growth was at a 10-1/2 year high while in Spain the service industry, worth around half of total economic output, expanded at its fastest pace in six months.

Those upbeat surveys stand in stark contrast to a British PMI, which was at the bottom end of a range of forecasts in a Reuters poll and showed the UK economy slowed sharply in January.

“Following falls in the manufacturing and construction PMI surveys released last week, the weak January services sector survey will do little to assuage fears that the economy lost the momentum it gained in Q4 at the start of 2018,” said Paul Hollingsworth at Capital Economics.

PRICE RISES

Although inflation is still nowhere near their target ceiling of 2 percent, ECB policymakers halved their monthly asset purchases from January and are expected to end the quantitative easing programme completely by the end of the year.

So they will be heartened to see an index measuring prices charged leapt to 54.8 from December’s 53.2, its highest since April 2011.

Higher energy prices proved a drag on retail sales across the bloc in December, which slipped 1.1 percent month-on-month.

IHS Markit said the PMI data, if maintained, pointed to first quarter GDP growth of 1.0 percent, which would be the best since the second quarter of 2010 and much faster than the 0.6 percent predicted by a Reuters poll last month.

Britain’s PMI points to an economic expansion of just 0.3 percent, IHS Markit said.

Growth in the bloc is being supported by a booming service industry. Its PMI bounced to 58.0 from 56.6, surpassing the flash estimate of 57.6 and chalking up its highest reading since August 2007.

That growth was boosted by new business flooding in at the fastest rate in over a decade. The sub-index was 57.3, up from 56.7 the month before to a level also not seen since August 2007.

Editing by Mark Heinrich

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