Europe produced further evidence of a solid start to 2007 yesterday with news of a spurt in service sector growth and prices that kept the focus on inflation ahead of this week's meeting of the European Central Bank.
"There is still plenty of momentum in the largest sector of the economy," Madeleine de Villiers of Capital Economics said in a note to clients which highlighted that service companies were confident about the underlying economic outlook. The surveys of corporate purchasing managers, conducted by NTC Research, showed rebounds in France and Italy and further gains in a resurgent Germany.
The European Commission forecasts growth of 2.1 per cent for 2007 after a surge of 2.6 per cent in 2006, though it said last week that it planned to revise its predictions upwards in a mid-February update.
Yesterday's news provided cause for optimism, although there was a drop in the growth rate of the manufacturing sector in another NTC survey released last week. The services sector accounts for the lion's share of the European economy. NTC's euro zone services sector activity index rose to 57.9 from 57.2 in December, reaching its highest since July 2006 when the region's economy was at top speed.
Growth in euro zone gross domestic product is expected to have come in at around 2.0 per cent annualised in the same quarter when first estimates are published next week.
Capital Economics said faster growth in input prices suggested inflationary pressures in the pipeline. BNP Paribas took a different view, saying in a note that slower growth in prices charged relative to input prices signalled moderation.
The surveys of purchasing managers followed a wider rush of mostly positive news for the economy last week, including falls in German and French unemployment and stable consumer prices. The Commission issued a preliminary estimate last week which showed consumer price growth steady at an annual 1.9 per cent, just below the tolerance limit of the ECB, whose governing council meets on Thursday.
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