Activity in the eurozone’s economy rose at its fastest pace for two-and-a-half years in January, according to a poll of purchasing managers that will boost hopes that the region’s nascent recovery is gaining traction.
The composite purchasing managers’ index, a closely watched gauge of momentum compiled by data firm Markit, rose to 52.9 last month, up from 52.1 and well above the crucial 50 score that marks an expansion in activity. Although the final PMI is slightly below the earlier flash estimate of 53.2, it is still the highest reading since June 2011, with activity lifted by the strong performance of the region’s factories.
The final reading for the bloc’s services companies, which account for the majority of the eurozone’s economic output, was 51.6 – worse than the flash estimate of 51.9 but still a marked improvement on the December reading of 51.
Chris Williamson, chief economist at Markit, said the reading signalled “a very encouraging start to the year”.
The final reading came as separate data from Eurostat, the EU’s statistical office, showed that retail sales dropped 1.6 per cent seasonally adjusted in December from the previous month.
Household spending has remained weak despite the currency bloc’s emergence from recession as wages have been stagnant and unemployment remained close to record highs. Recent consumer surveys suggest confidence is slowly returning, but economists are sceptical that spending will improve rapidly. They are also watching closely to see whether falling inflation will encourage spending due to better purchasing power, or whether consumers will hold off, expecting price deceleration to continue further.
German companies provided most of the lift to activity, with the reading for the bloc’s largest economy registering a two-and-a-half year high of 55.5. There were signs that the upturn was beginning to flow through to the eurozone periphery, with the PMI for Spain hitting 54.8 – its highest level in six-and-a-half years.
Sub indices for employment in Germany and Spain showed companies in both economies were hiring. Across the bloc, employment stabilised after months of decline. Mr Williamson said: “Hopefully we will now soon see companies start to generate new jobs in significant enough numbers to bring down the region’s unemployment rate in coming months, which will perhaps represent the true start of the economic recovery for many people.” At 12 per cent, unemployment in the region remains close to record highs.
In France the PMI rose to a three-month high of 48.9, up from 47.3 in December. However, services companies in the bloc’s second-largest economy continued to shed workers and new business orders fell, suggesting activity could remain weak in the months ahead. Jack Kennedy, senior economist at Markit, said: “All in all, there was little sign of the sector shaking off its torpor, as highlighted by firms’ confidence remaining at a historically low level.”
In recent months, the French PMI readings have shown the economy to be weaker than suggested by official data.
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