The recovery in business activity in the euro area accelerated in February as growth accelerated in the services sector, the bloc’s most important, a survey showed on Friday, the latest indication that the currency bloc will avoid a recession.
S&P Global’s composite reading of the purchasing managers’ index (PMI), considered a good barometer of the eurozone’s overall economic health, hit an eight-month high of 52.0 points last month, down from 50.3 in January, coming in its final reading slightly below the preliminary reading of 52.3 points.
February marked its second consecutive month above the 50-point mark, which separates growth from contraction.
“A resounding expansion in business activity in February helped allay concerns of a possible recession in the euro zone, for now,” said Chris Williamson, chief business economist at S&P Global.
Highlighting transitory factors that cast doubt on the strength of core demand, Williamson said that “there are nonetheless clear signs that business confidence has recovered from the lows seen late last year, driven by an easing of concerns in the energy market, as well as signs that inflation has peaked and recession risks have eased.”
The future output index, which measures business optimism for next year, rose to 61.2 points in February from 60.4 the previous month, its highest reading in a year.
The services PMI rose from 50.8 to 52.7 in February, just below the preliminary reading of 53.0 points.
Demand picked up and businesses were able to stockpile jobs for the first time since October. The index of new orders rebounded from 50.1 to 52.2 points.
With strong demand, eurozone businesses rose prices again, albeit at the slowest pace in more than a year.
“However, there are concerns that signs of persistently high selling price inflation, combined with the surprising resilience of the economy, will encourage the ECB to tighten monetary policy more aggressively, posing a downside risk to demand growth in the coming months.” Williamson declared.
According to economists polled by Reuters, another 50 basis point increase in the European Central Bank’s deposit rate this month is assumed, as well as a further 25 basis point hike next quarter, to bring the terminal rate to 3.25%.