Euro Area: Business activity expands at fastest pace in nine months in February

Euro Area PMI February 2023

Euro Area: Business activity expands at fastest pace in nine months in February

The flash Eurozone Composite Purchasing Managers’ Index (PMI) rose to 52.3 in February from 50.3 in January, hitting a nine-month high. Consequently, the index moved further above the 50 no-change threshold, signaling a stronger improvement in business conditions compared to the prior month.

February’s increase was led by a faster expansion in the services sector as well as a return to growth of manufacturing activity. New orders and production rose in both the services and manufacturing sectors, while business confidence strengthened thanks to fading recession fears and expectations that inflation has peaked. On the price front, input inflation fell—especially in the manufacturing sector—thanks to a further easing of supply constraints. Consequently, output inflation decelerated, although it remained elevated amid strong cost growth and intensifying wage pressures.

Commenting on the release, Chris Williamson, chief business economist at S&P Global Market Intelligence, stated:

“February’s PMI is broadly consistent with GDP rising at a quarterly rate of just under 0.3%. […] The combination of accelerating growth and stubbornly elevated price pressures will naturally encourage a bias towards further policy tightening in the months ahead.”

Meanwhile, Bert Colijn, senior economist at ING, said:

“The eurozone economy continues to surprise on the upside. The PMI paints a picture of an economy that is bouncing back from the sluggish performance in recent months, which is mainly driven by fading supply-side problems. […] The survey also suggests that demand is improving, which is surprising given the downturn in domestic demand in the fourth quarter in most large eurozone economies.”

FocusEconomics Consensus Forecast panelists expect fixed investment to expand 0.6% in 2023, which is unchanged from last month’s forecast. For 2024, panelists see fixed investment increasing 2.2%.

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