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Flash Eurozone PMI indicates growth acceleration in February

Published 2023-03-03, 05:40 a/m
Updated 2023-03-03, 05:40 a/m
© Reuters.

© Reuters.

By Geoffrey Smith 

Investing.com -- Economic activity in the Eurozone picked up in February as the bulk of Europe started to emerge from the energy crisis that had threatened to overwhelm it last year.

A flash estimate of the composite purchasing managers index for the Eurozone rose to 52.0 from 50.3 in January, according to S&P Global. While that was slightly below the 52.3 consensus forecast, it nonetheless suggests that the region has escaped the recession that was widely predicted a year ago, when Russia's invasion of Ukraine sent energy prices spiraling out of control.

Releases earlier on Friday had shown activity in France expanding for the first time in three months, while Germany, the region's biggest economy, enjoyed its first month of expansion since July. The French figures came in ahead of expectations, while the German one was slightly below.

"There are clear signs that business confidence has picked up from the lows seen late last year, buoyed by fewer energy market concerns, as well as signs that inflation has peaked and recession risks have eased," S&P Global economist Chris Williamson said in a release that showed new orders - the most forward-looking of the index components - rising for the first time in eight months in February. While order backlogs continued to decline, they did so at a slower rate than in recent months, S&P Global said. 

Williamson highlighted one point of concern is that selling prices continued at elevated levels, suggesting that there is still inflationary pressure in the pipeline. This was particularly the case for services, where price increases tend to be stickier than in manufacturing, given the higher share of labor in overall business costs in the service sector. By contrast, manufacturing is starting to benefit from the collapse in energy prices since the start of winter. Eurozone producer prices fell 2.8% in January, taking the annual rate of inflation down to 15% from 24.6%. 

“There is a concern...that signs of persistent elevated selling price inflation, combined with the surprising resiliency of the economy, will embolden the ECB into more aggressive monetary policy tightening, which poses a downside risk to demand growth in the months ahead," Williamson said. 

Banks have been scrambling to update their forecasts for Eurozone interest rates this week after data showing core inflation rose to 5.6% in February. Estonian central bank governor Madis Muller said the high core rate was "more worrisome" than the headline rate of 9.6%, which was down a little from January. 

Analysts at Morgan Stanley, Barclays and BNP Paribas all raised their forecasts for the peak ECB deposit rate to 4% overnight, bringing them into line with revised market expectations.

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