Skip to content

Eurozone activity hits 31-month high as recovery speeds up

Business activity in the eurozone private sector hit a 31-month high in January as a modest recovery gathered pace across the region, a key indicator showed on Thursday.

Analysts cautioned however that the economy is still not out of the woods, with high unemployment and tight government spending likely to keep activity subdued for some time.

Markit Economics said its Eurozone Composite Purchasing Managers Index (PMI) for January rose to 53.2 points from 52.1 in December, the seventh consecutive monthly rise.

The upturn was the fastest rate of growth since June 2011, Markit said, and took the economy further into positive territory above the 50-points boom-bust line.

“The eurozone’s recovery gained further momentum,” said Markit’s chief economist Chris Williamson. “The upturn in the PMI puts the region on course for a 0.4-0.5 percent expansion of Gross Domestic Product in the first quarter.”

“A 0.6-0.7 percent expansion in Germany helps offset a flat-looking picture in France,” Williamson said, adding that “the periphery is showing clear signs of starting 2014 on a firm footing.”

The index is a leading indicator of how the economy is performing and is closely watched by analysts and economists because it is regarded as broadly accurate.

Manufacturing led the recovery with output, new orders and new export orders all showing the largest monthly rises since April 2011. Services however grew more moderately.

“The upturn remains fragile,” Williamson said. “Companies cut employment again and selling prices continued to fall amid still weak demand.”

Growth disparities were “also a concern,” he noted, with output falling for a third month in France though the rate of decline had eased.

The PMI for France rose to 48.5 points in January from 47.3 in December, leaving it still in contraction, while Europe’s powerhouse Germany edged up to 55.9 from 55.

Analysts were guarded in their comments, unwilling to get carried away by the improvement in the figures, but largely agreeing the report was positive overall.

For Morgan Stanley, the outcome was better than expected and suggested “growth momentum has accelerated somewhat, even though it remains moderate.”

The economy could expand by 0.2 percent in fourth quarter 2013 and 0.3 percent in first quarter this year, the investment house said, but warned: “Domestic demand remains fragile (so) a sustained recovery is unlikely to take place any time soon.”

The eurozone economy escaped a record 18-month recession in second quarter 2013 with growth of 0.3 percent but this then slowed to just 0.1 percent in the third, sparking fears the recovery was stalling.

Data since then has been mixed but more recently has tended, like Thursday’s PMI report, to show that the economy has got through the soft spot it hit late last year.

Martin Van Vliet of ING estimated the 18-member eurozone could grow a much better-than-expected 0.4 percent in the first quarter this year “but that would not be enough to generate enough new jobs to have a significant impact on unemployment.”

The latest figures from November put the eurozone jobless at a near record 12.1 percent although there have been some signs the problem is easing slightly.

Comment count on this article reflects comments made on and Facebook. Visit Breitbart's Facebook Page.