The euro zone's dominant service sector grew at its fastest pace in two years in November suggesting an economic recovery will continue in the fourth quarter, a key survey showed today.
The data indicates the euro zone economy made further recovery progress after emerging from its worst ever recession in the third quarter, although the rate of growth to come is likely to be weak.
Markit's Eurozone Flash Service Purchasing Managers Index composed of surveys of around 2,000 companies ranging from cafes to banks rose to 53.2 in November from 52.6 in October, its highest since November 2007.
That was the third month in a row the index was above the 50 mark separating growth from contraction, and beat economists' expectations for it to hit 52.8.
Earlier data showed Germany's industrial and services economies picking up again, while France powered forward with its services PMI cruising to its highest level since October 2006.
Both countries made their way out of recession in the second quarter of the year, followed by Italy in the third, and leaving only Spain among the four largest economies still stuck in a heavy recession funk.
"There is not much to worry about the euro zone economy growing in the fourth quarter, but the data suggest that the third quarter may have been a peak and we will see subdued growth as we head into next year," said Chris Williamson, chief economist at Markit.
The euro zone economy grew by 0.4 per cent in the third quarter, and a Reuters poll showed it growing by 0.3 per cent in the fourth.
Growth was forecast to remain sluggish throughout 2010, which may help the European Central Bank keep interest rates at record low levels for some time yet.
That view was supported by a fall in the PMI's new business index to 51.2 from 52.7 in October, indicating companies were still finding it tough to drum up demand.
On Thursday the Organisation for Economic Co-operation and Development (OECD) said the euro zone economy should grow by 0.9 per cent in 2010 after a contraction of 4 per cent this year.
The euro zone manufacturing sector, which drove a large part of the return to growth in the third quarter, also performed well in November. The flash manufacturing index rose to 51.0 from 50.7 in October, its highest level since March 2008.
The index was pulled higher by moves higher in output, new orders and exports. Manufacturing performance came despite a strong euro, up around six per cent against the dollar since the start of the year, which has bit into euro zone exporters.
The rise across the services and manufacturing sectors took the Composite index to 53.7 from 53.0 in October, just above economists' expectations.
The surveys also pointed to a much more robust looking industrial sector.
The manufacturing PMI's output index rose to 54.6 in November as factories upped the pace of production. That was its highest level since September 2007, and a huge 22 points higher than the level it was at this time last year.
"It's at very high levels by historical standards and suggests we will see continued output growth in coming months," said Mr Williamson.
He attributed a slowdown in the pace of improvement in the main index to a waning bounce of a rundown in inventory levels which has helped the euro zone recover.
Yet promising numbers contrasted with figures showing jobs were lossed across both manufacturing and service companies.
The composite PMI employment index touched 45.5 last month from 45.4 in October, the seventeenth month running of job losses.
The surveys also showed inflation pressures picked up in November, even if costs passed on to customers fell as demand remained weak. Official inflation in the euro zone fell 0.1 per cent in October, but was widely expected to pick up in November as the base effects of a fall in fuel prices were factored in.
Reuters