Revival of Eurozone’s Private Sector: PMI Index Higher than Expected

Written by | Thursday, February 5th, 2015

The euro zone private sector expanded at its fastest pace in half a year thanks to a major fall in prices. According to Markit, a global and financial information and services company, a survey showed first-quarter growth of 0.3 percent. The research was mostly conducted before the launch of the European Central Bank’s quantitative easing program aimed to revive the economy and boost inflation. Moreover, Markit’s last January Composite Purchasing Managers’ Index (PMI), which is considered a reliable indicator of growth, was at 52.6, which was higher than estimated. PMI, which is an indicator of the economic health of the manufacturing sector, consists of five major variables: new orders, inventory levels, production, supplier deliveries and the employment environment.

Markit commented that “the euro zone enjoyed a positive start to 2015, as growth of economic activity accelerated. Among the big-four nations, output expanded in Germany, Italy and Spain, but the downturn in the French economy extended into its ninth month”. Despite the good news, growth came at cost to margins. An index that is measuring production went down marking its lowest reading since February 2010, which could probably be interpreted as that companies were cutting prices to help trade. Last month’s fall in prices was substantial, equalling to 0.6 percent, which was mostly driven by the fall in Brent crude price. Reduction in prices helped drive service industry activity up at the fastest pace in almost half a year.

As to services, the final PMI went up to 52.7 from 51.6 in December last year. The latest estimate stood 52.3 for January. “The survey data are running at a level consistent with GDP rising by 0.3 percent in the first quarter, and the move to full-scale quantitative easing by the ECB should help drive even stronger growth in coming months,” Chris Williamson, chief economist at Markit, said. New order inflows increased to a six-month high in Spain and recovered in Germany after they had been falling for two months. In France, the economy is still stagnant and in Italy, the economy contracted for the fifth consecutive month.

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