Euro-area hits speed bump on road to quicker economic growth, Germany on fast track

By BLOOMBERG

ZURICH • A speed bump in economic momentum in February won’t interrupt the euro-area’s upswing.

A composite Purchasing Managers’ Index (PMI) indicates that the 19-nation economy is expanding at a quarterly pace of 0.9%, the fastest in eight years, IHS Markit said yesterday. That’s even though the gauge fell to 57.5 from 58.8 in January, according to the London-based company.

An improvement in business optimism “bodes well, suggesting that companies are expecting the slowdown to be short-lived”, said Chris Williamson, chief business economist at IHS Markit. “The rate of expansion remains impressive.”

While growth remains solid, the euro-area PMI reading was weaker than economists forecast.

The numbers for manufacturing and services in both Germany and France, the region’s biggest economies, also fell short of expectations.

Policymakers at the European Central Bank are growing more confident that the region’s robust economic expansion will slowly translate into faster inflation, paving the way for a gradual withdrawal of monetary stimulus. The economy probably expanded 2.4% in 2017, the most in a decade.

While order growth slowed in February to a five-month low, companies still boosted staffing levels at one of the quickest rates in the past 17 years, according to the report.

Factory-gate inflation accelerated at the fastest pace since 2011, services providers slightly slowed the rate at which they raise prices.

The data follow an earlier release showing business activity in France slowed in February even as companies continued to step up hiring to work through a growing backlog of orders.

Meanwhile, after a month in which economic momentum slowed, Germany is still on track for the fastest quarterly growth in seven years.

Europe’s largest economy is heading for an expansion of 0.9% in the first quarter, according to Phil Smith, an economist at IHS Markit.

A drop in the composite PMI to 57.4 in February from 59 in January doesn’t change the fact that the country’s private sector is growing at a “robust pace”.

While Germany’s economy continues to boom, companies are increasingly facing bottlenecks amid healthy demand from within the country, its European neighbours and trading partners across the world.

The Bundesbank warned on Monday that a shortage of skilled workers could become an obstacle for an even faster expansion, adding that it anticipates more private investment and continuously strong consumption.

Output, employment and new orders all increased at a slower pace in February, though business confidence surged to the highest level since records began in mid- 2012, according to the report.

Output-price inflation was the second-fastest since 2008.