Growth of business activity in the euro area economy hit a seven-month high in February, according to the ‘flash’ reading of the Markit Eurozone PMI®. The survey’s Composite Output Index rose from 52.6 in January to 53.5.
Growth of business activity has now accelerated for three successive months, having almost stalled back in November, driven higher by stronger demand. New orders also grew at the sharpest rate for seven months in February.
Companies often struggled to cope with the increased inflows of new business, meaning backlogs of uncompleted orders rose for the first time since last April. The rise was the largest since May 2011.
With backlogs of work accumulating, and demand showing signs of picking up, firms took on extra staff at the fastest rate since August 2011. Faster growth was seen in both manufacturing and services, where factory output and business activity measures hit seven-month highs. Services continued to see the stronger pace of expansion of the two sectors, with manufacturing growth remaining relatively subdued.
Inflows of new business into the service sector were also stronger than seen in manufacturing, with the latter recording only a marginal upturn in new orders (though still the best monthly improvement since last July).
Forward-looking indicators bode well for a further upturn in March. Expectations of business activity in the year ahead in the service sector rose to the highest since May 2011, and the new orders-to-inventory ratio in manufacturing hit a seven-month peak. The latter suggested that factories will step up production to ensure orders can be fulfilled.
On the inflation front, lower oil prices were again cited as a major contributor to lower overall input costs, which fell for the second month running. The rate of decline eased, however, resulting in only a marginal drop in costs. A modest rise in service sector costs, often linked to higher wages, served to partly offset a marked drop in manufacturing input costs, though even here the rate of decline eased during the month.
Average selling prices fell at a reduced rate compared to January, which had seen the largest decline for almost five years. But the ongoing decline means prices charged by service providers and factories have now fallen continually on average for almost three years.
By country, an increasingly robust upturn was recorded in Germany while France enjoyed its best month of growth since August 2011, but growth elsewhere across the region eased.
Germany saw growth accelerate for the third month in a row, though the upturn was very much dependent upon its services economy. Manufacturing output growth, in contrast, slowed slightly. While German service sector firms took on staff at the fastest rate since December 2011, employment growth more or less stagnated at their manufacturing counterparts.
France saw its first upturn in business activity since April of last year, with growth hitting the fastest since August 2011. A strong upsurge in service sector activity was countered, however, by a steepening downturn in manufacturing. A marginal rise in employment was also seen in France, the first such increase since October 2013, reflecting increased service sector hiring.
Of note, average selling prices fell at the fastest rate since October 2009 in France, contrasting with higher prices in Germany.
Outside of France and Germany, the region as a whole saw business activity rise markedly once again, although the rate of expansion slowed from January’s six-month high. Job creation nevertheless rose to the joint-highest seen since the global financial crisis struck.
