Economic growth in the eurozone jumped sharply in February as coronavirus restrictions eased, a key survey showed yesterday.
Growth accelerated to a five-month high, IHS Markit said in its closely watched monthly survey,
IHS Markit’s Flash Composite Purchasing Managers’ Index, seen as a guide to overall economic health, jumped to a five-month high of 55.8 in February from 52.3 in January. Anything above 50 indicates growth. But he also noted that continuing supply constraints and soaring energy prices have also pushed inflation to a record high.
The rise was attributed to the euro zone – the 19 EU countries using the euro – leaving two months of tough restrictions designed to slow the spread of the Omicron variant. Omicron is now the dominant strain in Europe, but governments consider it less serious than previous variants because widespread vaccinations and booster shots have lessened its impact.
After two months of restrictions hitting the eurozone economy, “in February, these restrictions were eased to the lowest since November,” IHS Markit said.
The services sector led the new optimism, as an increase in travel and tourism pushed it to its highest level since last November.
Manufacturing rose “also accelerated slightly, reaching the fastest expansion since last September, in part due to better availability of supply” and an increase in demand.
However, supply constraints remained, resulting in backlogs, and average prices for goods and services rose to the highest level recorded in PMI surveys.
“Soaring energy costs and rising wages have added to inflationary pressures, driving the biggest rise in selling prices ever in a quarter-century of survey data history,” Chris Williamson said. , chief economist at IHS Markit.
“Intensifying inflationary pressures will add to speculation of a growing hawkish stance” at the European Central Bank (ECB), he said.
The survey showed growth in eurozone powerhouse Germany was at its highest level in six months, with an index of 56.2.
The second largest economy, France, did even better, with growth at its highest level in eight months and an index of 57.4.
In Britain, outside the single currency bloc and the European Union, the private sector has recovered at the fastest pace since June 2021, as spending on travel, leisure and entertainment increased.
“The surge in the eurozone flash composite PMI for February suggests that activity is recovering well from pandemic-related weakness over the winter,” said Andrew Kenningham of Capital Economics.
“Having returned to its pre-pandemic level in the fourth quarter of 2021, the euro area economy is expected to grow at a reasonable pace in the first quarter of this year and is expected to accelerate over the next two quarters as the tourism, travel and hospitality are returning to normal.”
Eurozone inflation hit a record high in January at 5.1% a year and the ECB is under increasing pressure to tighten monetary policy.
“The PMI suggests that the winter economic downturn could be much milder than expected, labor market pressures continue to build and second-round effects are currently translating into more broad-based price pressures,” Bert said. Colijn at ING.
“Expect this to add to hawkish pressure ahead of the March ECB meeting.”