Euro zone services business grew at its fastest pace in 20 months in October, quicker than expected, while manufacturing activity expanded for the first time in over a year, suggesting the recovery is gathering pace.
Markit's Eurozone Flash Services Purchasing Managers Index (PMI), compiled from surveys of around 2,000 companies, leapt to 52.3 in October from 50.9 in September, its highest level since February 2008.
That smashed consensus expectations for a rise to 51.4, powered ahead by a leap in services growth in France, and came in a touch higher than even the most optimistic forecast in a Reuters poll of 36 analysts.
The reading for the dominant service sector, above the 50.0 mark that divides growth from contraction for the second consecutive month, will likely reassure the European Central Bank that its loose monetary policies are bearing fruit.
The euro zone economy contracted 0.1 per cent in the second quarter of this year, having shrunk by a record 2.5 per cent in the first quarter.
The euro zone flash manufacturing index also beat expectations for 50.1 by coming in at 50.7, an 18-month high and up from the 49.3 seen last month. The sector's output index rose to a 23-month high of 54.1, well above September's 51.7.
The manufacturing new export orders index rose to a 21-month high of 51.5 this month, up from 50.1 in September, but this could be dented by a strengthening euro.
The euro hit a 14-month high against the dollar today, climbing above $1.50, making exports to countries outside the bloc more expensive.
The combined rises in the services and manufacturing indexes took the Composite Index to a 22-month high of 53.0, up from 51.1 in September and above the 51.6 expected by economists.
Separate flash PMIs earlier showed manufacturing sector activity in Germany, the 16-nation bloc's biggest economy expanded for the first time in over a year but its service sector expanded at a far slower pace than expected.
The German services PMI fell to 50.9 this month, down from September's 52.1 and considerably below expectations for a rise 52.5.
The Munich-based Ifo think tank said earlier today that German business sentiment rose slightly this month, pointing to a hesitant recovery in the country.
However, neighbouring France, the euro zone's second biggest economy, saw its services sector expand for the second month -- at a pace not seen in 20 months -- while its manufacturing sector grew for a third, both better than expectations.
Service sector new business across the euro zone reached a 20-month high this month, as orders rose, with the index reaching 51.9, up from the 50.7 seen in September.
But while both sectors are expanding companies are still slashing jobs in a bid to cut costs and the composite employment index remained firmly in contractionary territory at 45.1, although up from September's 44.6.
"This is the one to watch," said Chris Williamson at data provider Markit.
"We need a stabilisation of the labour market to help sustain any recovery next year. Generally the trend is moving in the right direction but it is slower than in other countries such as the US and the UK."
Official unemployment hit a 10-year high of 9.6 per cent in August and is forecast to reach 10 per cent this quarter and hold above that level into 2011.
Reuters