Activity in the euro zone's private sector grew faster than expected this month, particularly in the region's factories, but the upturn is driving prices higher, business surveys showed today.
Germany, Europe's biggest economy, continued to lead the way but peripheral members that had been languishing in a downturn also saw an upswing.
Markit's Flash Eurozone Manufacturing PMI leapt to a near 11-year high of 59.0 from 57.3 in January beating expectations for 57.3. The output index rose to 61.1 from last month's 59.4, its highest since April 2010.
The flash euro zone services PMI, which measures activity in companies ranging from banks to hotels, rose to 57.2 from 55.9 in January, its highest reading since August 2007 and marking its 18th month above the 50 point dividing growth from contraction.
Economists had predicted only a slight uptick to 56.0.
"Manufacturing is really powering ahead. Services are still lagging manufacturing but that just reflects the superb rate of growth," said Markit's Chris Williamson.
Earlier data from Germany showed its services PMI dipped to 59.5 this month from January's 60.3 but the pace of growth in its manufacturing sector picked up speed, with the PMI for that sector rising to the highest in the survey's 15-year history.
Next door in France both sectors also saw an upturn.
"France and Germany's differential is narrowing in terms of output but also the differential with the rest of the euro zone is narrowing as well. Manufacturing outside of France and Germany is positively surging now," Mr Williamson said.
The euro zone composite index, compiled from the services and manufacturing sectors and often used to predict overall growth, bounced to 58.4 this month from 57.0 in January, smashing expectations for 56.9 and notching up its highest reading since July 2006.
The numbers, if little changed next month, are in line with first quarter growth of around 0.7 per cent, Markit said.
The region's economy grew 0.3 per cent in the final three months of 2010 and economists polled by Reuters don't expect a strong pick up anytime soon.
Input prices in the manufacturing sector rose at their fastest pace in the survey's near 14-year history as the cost of raw materials and energy soared. The indicator jumped to 85.7 this month from 79.2 in January.
The output price index also climbed to a survey high, suggesting firms were able to pass on some of the increases to customers.
Euro zone inflation jumped more than expected in January, rising well above the European Central Bank's two-per cent target ceiling. Official early estimates suggest prices rose 2.4 per cent year-on-year last month.
Data released earlier this month showed unemployment in the euro zone held steady at 10.0 per cent in December, hovering near a 12-year high.
The outlook for the dominant service sector is also improving with the new business index rising to 56.4 this month from January's 55.9, its highest level since August 2007.
Firms hired workers at a faster pace this month, reversing a recent trend, with the composite employment index rising to 52.8 from January's 52.1.
Reuters