The pace of economic growth in the eurozone rose to the highest seen so far this year in October, led by a growth upturn in Germany, according to PMI® survey data.
Faster growth of orders books and an acceleration in the pace of hiring also augur well for the economy to continue to strengthen in coming months. Inflationary pressures meanwhile showed signs of picking up, with the survey recording the largest increase in prices charged for over five years.
The Markit Eurozone PMI rose from 52.6 in September to 53.7 in October, signalling the fastest monthly increase in business activity since December of last year. New order growth was the highest since January, prompting firms to take on extra staff. Employment showed the biggest gain for three months.
Despite the increase in headcounts, backlogs of work accumulated at the fastest rate since May 2011 as many firms struggled to keep pace with demand.
With demand firming, companies were increasingly able to charge higher rates to customers. Average prices charged for goods and services rose for the first time since August 2015. Higher prices were often a reflection of the need to pass rising costs on to customers. Average input costs increased at the steepest rate for 15 months, linked mainly to higher commodity prices, notably oil-related, as well as rising wage costs.
Growth of output picked up in both manufacturing and services to show the best gains seen since the turn of the year, with inflows of new orders and backlogs of unfinished work likewise rising at faster rates in both sectors.
Manufacturers reported the steeper rates of increase, which also fed through to stronger employment growth. While hiring in the service sector merely ticked higher to remain close to September’s five-month low, payroll growth in the goods-producing sector climbed to the highest since May 2011.
Germany led the expansion, with growth gaining significant momentum to show the second-largest monthly increase so far this year. Manufacturing enjoyed one of the largest upturns in production seen over the past two-and-a-half years, and service sector business activity surged higher, reviving from September’s slump to near stagnation.
Employment growth hit a five-year high, and the increase in average selling prices was the joint-largest seen over the past four-and-a-half years.
By contrast, the pace of growth slowed in France, though was nevertheless the second-best seen over the past year. An upturn in factory output growth to a two-and-a-half-year high was countered by a slower rate of service sector expansion. Although total growth in new order inflows slowed and employment was trimmed back, backlogs of work jumped to the greatest extent since May 2011.
Selling prices continued to fall, but even here there was some good news in that the rate of decline was the weakest for just over a year. Elsewhere, output growth across the rest of the region revived from September’s 21-month low but remained one of the weakest expansions recorded over the past two years.
Chris Williamson, Chief Business Economist at IHS Markit:
October’s PMI is consistent with a quarterly GDP growth rate of 0.4%, led by a 0.5% pace of expansion in Germany. Modest growth of 0.2-0.3% is being signalled for France, but there are various indicators which suggest that France will enjoy stronger growth in coming months, including a marked build-up of uncompleted work.