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File photo of the ECB headquarters in Frankfurt. (Alex Domanski/Reuters)
File photo of the ECB headquarters in Frankfurt. (Alex Domanski/Reuters)

Euro zone businesses log strongest month in 2-1/2 years in January Add to ...

The euro zone’s private sector logged its busiest month in 2-1/2 years in January as buoyant manufacturing growth outshone a more modest expansion in services activity, surveys showed on Wednesday.

Markit’s Eurozone Composite Purchasing Managers’ Index (PMI), which gauges business activity across thousands of companies and is seen as a good guide to economic health, climbed to 52.9 in January from 52.1 the previous month.

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It was the highest final reading since June 2011 and was comfortably above the 50 mark that separates growth from contraction, although it was shy of the flash reading of 53.2 reported in late January.

Markit said the PMI showed the now 18-member bloc’s recovery was broad-based, with Germany leading an upswing in periphery members amid signs of a stabilization in France, the euro area’s second-biggest economy.

“The euro zone PMI was down slightly on the earlier flash reading but nevertheless signals a very encouraging start to the year,” said Chris Williamson, Markit’s chief economist.

“The main concern is that the recovery is still all too dependent on the manufacturing sector. Although the service sector has returned to growth, its weak pace of expansion reflects still-subdued domestic demand.”

A PMI covering services businesses, which make up the bulk of the bloc’s economy, rose to a four-month high of 51.6 from 51.0, below a flash reading of 51.9. Data on Monday showed factories had their best month since mid-2011. <EUR/PMIM> Services firms found new orders trickling in slower than in December. The related sub-index dropped to 50.8 from 51.4, weaker than the flash reading of 51.0, and suggesting little uptick in the headline number this month.

Williamson remained upbeat about the surveys though, saying forecasts for 2014 economic growth would be revised up from the current consensus of 1 per cent if the PMIs continued to rise in the coming months.

The upturn is starting to feed through to the labour market, with businesses holding staffing levels steady for the second month, having cut them for almost all of the last two years.

A composite index measuring employment held steady at 50.0 and comes after official data last week showed unemployment across the bloc was stuck near a record high of 12 per cent for the third month running in December.

Worryingly for the European Central Bank, which is expected to leave policy unchanged when it meets on Thursday, firms cut prices for the 22nd month in a row, showing very little in the way of pricing power. <ECB/INT> Inflation fell well below the ECB’s target of just below 2 per cent in January – official data showed last week prices rose only 0.7 per cent – and the latest PMI data will do little to allay fears of deflation in the region.

More expensive energy made euro zone producer prices grow faster than expected month-on-month in December, data showed on Tuesday, but year-on-year prices still fell, again pointing to risks of deflation that the ECB will have to address.

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