Eurozone growth at six-month high

Source: Markit Economics

Feb 02, 2011

The Markit Flash Eurozone Composite Output Index, based on around 85% of usual monthly replies, rose from 55.5 in December to a six-month high of 56.3 in January.

Growth accelerated in both manufacturing and services, with the former seeing the stronger rate of increase (as has been the case in all but one period of the 18-month recovery). Manufacturers saw the largest rise in output for six months. Meanwhile, services saw activity growth recover to a pace just below November’s three-month high, and only one index point lower than last May’s post-recession peak, in part reflecting a bounce-back from weather related disruptions in December.

Growth was again led by Germany, where the rate of expansion rose to a rate exceeded only once (in June 2006) in the survey’s 13-year history and was well above the Eurozone average. Output growth also picked up in France, which posted the strongest gain for four months and a rate of expansion marginally above the Eurozone average. Outside of these two core countries, however, output growth remained close to stagnation, with the rate of increase only slightly above December’s 13-month low.

Growth of new orders accelerated for the third month running to hit a nine-month peak. Service sector new business showed the strongest gain since October 2007, though the rate of increase failed to match that of manufacturing, despite goods producers seeing new orders rise at a modestly weaker pace. New export orders for goods also increased at a lower pace but continued to provide a key stimulus to order book growth.

Growth of new business hit a record high in Germany, driven by a survey peak in services and strong manufacturing order book growth. Slower, but still steep, growth was seen in France, though outside of these two member states new orders fell marginally for the fourth time in the past five months, with weaker demand for services offsetting improved sales in manufacturing.

The increased rate of growth of incoming new business caused backlogs of work to rise at the fastest rate since June 2007, with a surge in services helping to close the gap on the still-strong rate of increase in manufacturing. A record increase was seen in Germany.

Employment rose for the ninth month in a row, but the rate of increase eased further from November’s 33-month peak to hit a three-month low. Manufacturing payroll numbers showed the largest rise since October 2000, though service sector job growth slowed to show only modest growth. Ongoing robust payroll growth in Germany contrasted with a near-stagnation of the labour market in France and further job losses in the rest of the region.

Mixed signals were sent regarding inflation. Input prices rose at the highest rate since August 2008, but output prices rose at a reduced pace, with charges falling again in the periphery.

Manufacturers sought to push a record rise in input prices onto customers, causing output prices to also show a near-record increase. Price pressures were more muted in services. Although average costs rose at the sharpest rate since October 2008, prices charged fell slightly.