Manufacturing activity in the euro zone accelerated more than previously thought in January, indicating the sector is regaining momentum across most of the region with the notable exception of battered Greece, a survey showed today.
"The data also show a reassuring improvement in the periphery, for manufacturing at least, with Ireland and Italy in particular seeing growth leap higher in January," said Chris Williamson at data provider Markit.
The Markit Eurozone Manufacturing Purchasing Managers' Index (PMI), which records manufacturing activity across all the major euro area economies, rose to 57.3 in January from 57.1 in December, exceeding an earlier flash estimate of 56.9.
Companies, however, faced surging cost pressure with input prices rising at the fastest pace since the survey began in June 1997, adding to signs of rising inflation pressure in other sectors of the economy and raising the risk the European Central Bank will have to raise interest rates sooner than expected.
This is the 16th month the index has been above the 50.0 mark that divides growth from contraction and is its highest reading since April. The euro zone's eight biggest economies all saw manufacturing growth last month, with the exception of Greece.
"Manufacturing continued to act as an important driver of economic growth at the start of 2011. The increase in production regained momentum after a lull last autumn, to run only slightly slower than the surging pace seen in the second quarter of last year," Mr Williamson said.
The euro zone economy grew at its fastest pace in four years between April and June last year, expanding 1 per cent, but a Reuters poll predicted the region's economy will grow by between just 0.3 and 0.4 per cent per quarter through to the end of 2012.
Germany's core PMI rose from a flash reading to 60.5 but was virtually unchanged from December's five-month high while France's PMI fell as growth in activity slowed.
Italy saw the first growth in manufacturing since June 2006 while Spain's reading nudged up to its highest level since April.
The euro zone survey's output index leapt to 59.4 last month, up from December's 58.4 and the flash reading of 58.6, and it's highest since April while new orders held at December's eight-month peak.
The input price index, although down from a flash reading for 79.8, still notched up its highest final reading since the survey began in June 1997 at 79.2. In December it was at 74.1. Markit attributed higher costs to rising prices for fuel, food and metals and output price inflation reached a two-and-a-half year high - indicating firms were able to pass on at least some of their higher costs to customers.
"Inflation worries will be stoked by a record rise in manufacturers' raw material prices, which firms subsequently passed on to customers in the form of higher selling prices," said Mr Williamson. Euro zone consumer prices rose 2.4 per cent in January, well above the European Central Bank's 2 per cent target, official data showed yesterday.
Economists are divided on whether the ECB will start raising interest rates late this year or hold off until the first quarter of 2012.
Figures due on Thursday are expected to confirm the region's dominant service sector PMI held steady after a flash reading of 55.2.
Reuters