Euro zone business activity moves closer to recovery, PMI survey shows

LONDON (Reuters) – Business activity in the euro zone showed signs of recovery last month as the bloc’s dominant services industry expanded for the first time since July, offsetting a deeper contraction in manufacturing, a survey showed.

HCOB’s composite Purchasing Managers’ Index (PMI) for the bloc, compiled by S&P Global and seen as a good guide of overall economic health, jumped to 49.2 in February from January’s 47.9, ahead of a preliminary 48.9 estimate.

That was its best reading since June but remained below the 50 mark separating growth from contraction.

A services PMI rose to 50.2 from 48.4, beating the 50.0 flash reading.

“The service sector may be off to a better start in 2024 than anticipated. While the growth rate is fractional, it is complemented by positive developments in other PMI sub-indicators,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

An index covering new business was a whisker shy of reaching breakeven, optimism about the year ahead was at its highest in over a year and firms took on more workers. The services employment PMI rose to an eight-month high of 52.7 from 51.2.

“While employment is traditionally considered a lagging indicator, this trend hints at a growing sense of optimism and points towards continued sectoral recovery,” de la Rubia said.

However, there were signs of inflationary pressures building with both the composite input and output price indexes rising. The output prices index was at a nine-month high of 54.4, up from January’s 54.2.

The European Central Bank is expected to keep interest rates at record highs on Thursday as it continues its battle to bring inflation back to target. It will be June before it starts cutting, a Reuters poll found.

(Reporting by Jonathan Cable; editing by Christina Fincher)