Business activity growth jumps to 9-month high in Eurozone: S&P Global

The S&P Global Eurozone Composite PMI increased to 52.3 in February 2023, up from 50.3 in the previous month, a preliminary estimate showed.

February's upturn was led by the service sector, where business activity rose for a second consecutive month, the index up from 50.8 to 53.0 to register the strongest expansion since last June. Manufacturers meanwhile eked out a modest gain in production, the factory output index up from 48.9 to 50.4 to signal the first increase in production since last May.

Within the euro area, both France and Germany returned to growth for the first times since last October and last June respectively. The composite PMI for France rose from 49.1 to 51.6, albeit with growth confined to the service sector. The composite PMI for Germany meanwhile edged up from 49.9 to 51.1 reflecting a second successive monthly rise in service sector activity and the first expansion of manufacturing output since last May.

The acceleration of growth of output across the eurozone as a whole was fueled by the first, yet modest, rise in new orders since last May, which was in turn driven by the steepest increase in demand for services for nine months and the shallowest - though still marked - drop in new orders for goods over the same period.

Rising demand, healing supply chains, order book backlog reduction and improved confidence underpinned the upturn. The data are consistent with the economy expanding in the first quarter so far, with employment also continuing to rise.

Input cost inflation meanwhile cooled further, notably in the manufacturing sector. While rates of selling price inflation remained stubbornly high, especially in the service sector, in part linked to the impact of higher wage costs, the overall rate of selling price inflation also slowed, down to a 16-month low, in a further sign of moderating price pressures.

Commenting on the flash PMI data, Chris Williamson, chief business economist at S&P Global Market Intelligence said: Business activity across the eurozone grew much faster than expected in February, with growth hitting a nine month high thanks to resurgent service sector activity and a recovering manufacturing economy. February's PMI is broadly consistent with GDP rising at a quarterly rate of just under 0.3%.

Although inflationary pressures have continued to moderate in February, the survey hints at persistent elevated price trends in the service sector, linked in part to higher wage growth, which will concern ECB policymakers.

The combination of accelerating growth and stubbornly elevated price pressures will naturally encourage a bias towards further policy tightening in the months ahead.

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