Business activity in EU recovering faster than forecast
2023.02.21 09:53
Business activity in EU recovering faster than forecast
By Kristina Sobol
Budrigannews.com – According to a survey released on Tuesday, the recovery in euro zone business activity picked up speed this month, expanding much faster than anticipated. This is the latest evidence that the currency union could avoid a recession.
Businesses in Britain reported an unexpected increase in activity and a decrease in price pressures in a sister survey, indicating that the European economic outlook may be less gloomy than anticipated.
Global S&P (NYSE:) The eurozone’s flash Composite Purchasing Managers’ Index (PMI) rose to a nine-month high of 52.3 in February from 50.3 in January, making it a useful indicator of the bloc’s overall economic health.
That was significantly higher than all forecasts in a Reuters poll, which had predicted a more modest rise to 50.6, and comfortably above the 50 threshold that separates growth from contraction.
Rory Fennessy of Oxford Economics stated, “The healthy PMI readings for February pose upside risks to our growth forecast, raising odds that the euro zone could avoid contracting in Q1.”
“However, we stress that growth will still underwhelm this year, weighed down by still-high inflation, tightening financial conditions, and soft global growth,” the statement reads.
According to its PMI, business activity in Germany, the largest economy in Europe, returned to growth in February for the first time in eight months as a result of reduced supply bottlenecks and increased underlying demand.
The ZEW economic research institute reported on Tuesday that investor sentiment in Germany continued to trend upward in February.
Similar results were seen in France’s PMI, which showed that activity grew for the first time since October, aided by a slight easing of inflationary pressures and the strength of the job market.
The euro zone purchasing managers’ index (PMI) showed demand rising for the first time since mid-2022, while businesses once more increased their workforce, implying that the region’s upswing could continue. From 48.9, the euro zone new business index increased to 50.6.
In a Reuters poll, activity in the bloc’s dominant services industry grew at its fastest rate since June, and its PMI rose to 53.0 from 50.8, exceeding all estimates and the median estimate of 51.0.
In February, optimism for the coming year increased once more as fears of a recession subsided. From 61.2 in January, the business expectations index increased to a nine-month high of 61.5.
However, this month saw a slightly faster decline in factory activity. The manufacturing PMI fell to 48.5 from 48.8, exceeding all forecasts and contradicting expectations in the Reuters poll for a rise to 49.3.
However, the composite PMI’s output index rose to 50.4 from 48.9, its first time above 50 since May, while factories saw their selling prices rise at their slowest rate in nearly two years. From 61.6, the output prices index decreased to 58.3.
According to Capital Economics’ Jack Allen-Reynolds, “the improved supply picture, together with the huge drop in gas prices over the past few months, helps to explain the drop in the manufacturing input price index to its lowest level since September 2020.”
The European Central Bank’s policymakers, who have been aggressively raising borrowing costs in an effort to control inflation that is well above its target, are likely to welcome signs of price pressures decreasing.
A poll conducted by Reuters this past week revealed that the ECB will raise its deposit rate at least twice more in the upcoming quarter, bringing it to a terminal rate of 3.25 percent.
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