Euro Area: Business activity growth accelerates in February amid easing restrictions

Euro Area PMI February 2022

Euro Area: Business activity growth accelerates in February amid easing restrictions

The flash Eurozone Composite Purchasing Managers’ Index (PMI), produced by IHS Markit, rose to 55.8 in February from 52.3 in January, marking the highest reading in five months. Therefore, the index moved further above the 50-threshold that distinguishes expanding from contracting activity in the private sector, signaling a faster improvement in business conditions.

February’s improvement was led by a marked acceleration in services sector activity, with output increasing at the fastest pace in three months and new orders at the fastest in six months. Meanwhile, growth in the manufacturing sector accelerated slightly compared to last month, with output expanding at a somewhat stronger pace and new orders growth hitting a six-month high. In addition, the pace of job creation sped up in both sectors.

On the price front, input costs continued to soar amid a quicker increase in backlogs of uncompleted work. This translated into a fresh-record jump in output prices. Lastly, business optimism improved, with companies expecting supply chains bottlenecks to ease and demand to keep rising going forward.

Assessing the Eurozone’s two largest economies, growth in business activity strengthened in both France and Germany.

Commenting on the release, Chris Williamson, chief business economist at IHS Markit, said:

“The strength of the rebound in business activity signalled by the PMI provides welcome evidence that the economy has so far shown encouraging resilience in the face of the Omicron wave, but the intensification of inflationary pressures will add to speculation of an increasing hawkish stance at the ECB.”

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

“All in all, the PMI brings together a lot of elements that raise concern about medium-term inflation. The PMI suggests that the winter economic dip could be much milder than expected, labour market pressures continue to build and second-round effects are resulting in more broad-based price pressures at the moment. Expect this to add to hawkish pressures ahead of the European Central Bank March meeting.”

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