Euro zone business activity off to strong start

The euro zone’s private sector started 2014 in much better shape than expected, with stronger growth across the region marred only by a continued downturn in France, surveys showed today.

Markit’s flash Eurozone composite purchasing managers’ index (PMI), which gauges business activity across thousands of companies and is seen as a good guide to economic health, jumped to 53.2 in January from 52.1 last month.

That was well above the 50 mark that denotes growth and was its highest reading since mid-2011.

"Hopefully the upturn we are seeing in Germany and across the rest of the region - which saw the strongest growth since around mid-2011 - will help pull France out of its current malaise," said Chris Williamson, chief economist at Markit.

An earlier composite PMI from France, the bloc’s second-biggest economy, showed activity contracted for the third month running in January, although the downturn was less pronounced and both its services and factory PMIs beat expectations.

In neighbouring Germany the composite PMI rose to a 31-month high.

Williamson said if the data held near current levels, the region's economy would grow around 0.3-0.4 per cent in the first quarter, stronger than the 0.2 per cent suggested in a Reuters poll last week.

New orders rose across the bloc for the sixth month, with the sub-index matching December’s 30-month record of 52.2, indicating the PMIs might rise higher next month.

The upturn was broad based, with growth in both the services and manufacturing industries, and the data comes after Ireland and Spain saw strong demand for their bonds this month, while European shares climbed to fresh 5-1/2 year peaks yesterday as investors become increasingly bullish.

Inflation was just 0.8 per cent across the euro zone in December, official data showed last week, well below the European Central Bank’s 2 per cent target ceiling.

The PMI for manufacturing bounced to a 32-month high of 53.9 from 52.7, beating all 39 forecasts in a Reuters poll. A gauge of manufacturing output, which feeds into the composite PMI, climbed to 56.7 from 54.9, its highest since April 2011.