Euro zone business growth sped up but stayed weak in February

By Jonathan Cable

LONDON (Reuters) – Euro zone business activity accelerated more than thought last month but remained lackluster as a pickup in services growth only partially masked a downturn in the bloc’s manufacturing industry, a survey showed on Tuesday.

The results come two days before officials at the European Central Bank announce their latest monetary policy.

Having drawn a line under their more than 2.6 trillion euro stimulus program at the turn of the year, they are not expected to change policy on Thursday but will soon relaunch their long-term loan offerings, a Reuters poll suggested last week.

IHS Markit’s Euro Zone Composite Final Purchasing Managers’ Index (PMI), considered a good measure of overall economic health, rose to 51.9 in February from January’s 51.0.

That was higher than an earlier flash reading of 51.4 but was close to the 50 mark separating growth from contraction.

“The PMIs were slightly revised up, so that is a little bit of good news, but they are still at a level consistent with GDP growth of about 0.2 percent, so no improvement from the second half of last year,” said Andrew Kenningham at Capital Economics.

Last week’s Reuters poll predicted euro zone growth of 0.3 percent this quarter, faster than the 0.2 percent at the end of 2018.

Among the most important economies, France’s service sector activity picked up in February, Italy’s expanded slightly after contracting in January, and Spain’s eased a bit but less than expected.

Higher demand propelled activity in Germany’s services sector to a five-month peak in February, a further sign this branch of the economy will continue to provide growth momentum as manufacturing shrinks.

Euro zone manufacturing activity went into reverse for the first time in over five years last month, a sister survey showed on Friday, but a PMI covering the bloc’s dominant services industry bounced to 52.8 from January’s 51.2.

Although that beat an earlier flash estimate of 52.3, January’s reading matched December’s four-year low and so came from a low base.

“There is this divergence between the services and manufacturing sectors which may suggest domestic demand is holding up better than external demand,” Kenningham said.

“But if you look at what happened previously, any divergence between the two tends to be short-lived so I think the services sector may not hold up that well in the coming months.”

A new business index rose to a still-weak 51.4 from January’s more than four-year low of 50.1.

Suggesting they were operating with some spare capacity, firms did not build up a backlog of work last month. The composite sub-index was bang on the break even 50 mark, an improvement from January’s 48.3.

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