Euro zone businesses start 2018 in best shape for over a decade

LONDON - 5 February 2018: Euro zone businesses started 2018 by increasing activity faster than at any time in well over a decade as new orders surged despite firms raising prices at the steepest rate in almost seven years, a survey showed.

The euro zone emerged as one of the best-performing major economies last year, and forward-looking indicators in the survey suggest that momentum will continue for at least another few months, in welcome news for the European Central Bank as it moves to unwind policy.

IHS Markit’s Final Composite Purchasing Managers’ Index, seen as a good overall growth indicator for the euro zone, rose to 58.8 in January from December’s 58.1 and up from the flash estimate of 58.6.

It is now at its highest since June 2006 and well above the 50 mark that separates growth from contraction.

“The strong upturn is also broad-based, which adds to the potential for the growth to become more self-sustaining as demand rises across the single currency area,” said Chris Williamson, chief business economist at IHS Markit.

“The survey data are therefore indicating that the euro zone has started 2018 with very good growth momentum, and that price pressures are building commensurately. If such impressive numbers continue to be seen in coming months, expect policymakers to sound increasingly hawkish.”

Although inflation is still nowhere near their target ceiling of 2 percent, ECB policymakers halved their monthly asset purchases from January and are expected to end the quantitative easing program completely by the end of the year.

So they will be heartened to see an index measuring prices charged leapt to 54.8 from December’s 53.2, it’s highest since April 2011.

Williamson said the PMI data, if maintained, pointed to first quarter GDP growth of 1.0 percent, which would be the best since the second quarter of 2010 and much faster than the 0.6 percent predicted by a Reuters poll last month.

Growth is being supported by a booming service industry. Its PMI bounced to 58.0 from 56.6, surpassing the flash estimate of 57.6 and chalking up its highest reading since August 2007.

That growth was boosted by new business flooding in at the fastest rate in over a decade. The sub-index was 57.3, up from 56.7 the month before to a level also not seen since August 2007.