France continues to sink, however.
The euro area economy continued to expand at a robust pace in February, enjoying its strongest run of growth since the first half of 2011. The flash estimate of the Markit Eurozone PMI® Composite Output Index fell slightly to 52.7 in February, but remained close to January’s 31-month high of 52.9. The PMI has now held above the 50.0 no-change level for eight successive months, signalling a continuous expansion of business activity since last July.
New orders rose for a seventh successive month, and the rate of growth accelerated marginally to reach the highest since June 2011.
Employment was unchanged for the third month running, contrasting with the trend of falling headcounts seen over the previous 23 months. Rising new orders have yet to translate into higher employment as many companies continue to focus on boosting productivity and competitiveness.
Output prices fell for the twenty-third month running as firms competed on price to win business, though the rate of decline was only marginal and the weakest since May 2012 as some firms reported improved pricing power. Some companies also cited the need to pass higher costs on to customers. Input prices increased for the ninth consecutive month, albeit showing the smallest rise since last September.
A modest pick-up in service sector growth was offset by an easing in the rate of manufacturing output expansion. Overall, however, the latter continued to outperform the former, in part reflecting goods exporters benefitting from stronger demand outside of the single currency area.
Manufacturers reported an increase in production for the eighth month in a row, with the rate of increase slowing slightly but nevertheless registering the second-best monthly expansion of output since April 2011. New orders rose, but the rate of increase likewise slowed. Factory employment meanwhile increased for the second successive month, registering the first such period of jobs growth for over two years.
Service sector business activity increased for the seventh month running, showing the largest rise since September and the second-largest since June 2011. Growth of new business also picked up but, as with activity, the rate of growth remained only modest compared to standards seen prior to the financial crisis. Service sector employment fell very marginally as a result of the overall sluggish nature of the upturn. However, companies remained upbeat about the year ahead, with optimism holding steady on the two-and-a-half year high seen in January.
By country, Germany and France once again saw contrasting trends. German companies reported the strongest expansions of activity and new orders since June 2011, with job creation running at the highest since January 2012 as firms expanded capacity to meet demand. Strong demand also enabled German firms to raise prices. The outlook also improved, with service sector optimism about the year ahead reaching its highest since March 2011.
French firms reported a fourth successive monthly fall in business activity, with the rate of decline accelerating as new orders also fell at a faster rate. Headcounts were cut at a stronger rate as a result, and weak demand meant firms cut selling prices on average again as they sought to stimulate sales. Manufacturing output rose slightly, registering only the second monthly increase seen in the past two years on the back of better exports. Service sector activity, in contrast, fell at the fastest rate since last May. French service firms nevertheless reported the highest expectations for activity since March 2012.
Outside of France and Germany, the rest of the region saw business activity rise for the seventh consecutive month. The rate of increase dipped slightly but remained close to the near-three year high seen in January. Growth of new orders hit the highest for three years, but employment and selling prices fell once again. Expectations in the service sector about the year ahead remained elevated, but eased to a four-month low.
Markit estimates that
Looking at the latest two months as a whole, the PMI suggests the region is on course to see GDP expand by up to 0.5% in the first quarter, which would be the strongest growth for three years. Germany is likely to see GDP increase by as much as 0.7%. The “periphery‟ is meanwhile enjoying its best period of growth since early-2011, which should help drive a more broad-based and sustainable expansion as we move through 2014.
However,
there is a risk of the French economy contracting again in the first quarter.
