Euro-area companies struggling to keep up with booming orders are expanding their ranks at the fastest pace in more than ten years.
With a Purchasing Managers’ Index indicating strong momentum at the start of the fourth quarter, the 19-nation economy is on course for growth of as much as 0.7 percent, IHS Markit said on Monday. A gauge for manufacturing and services slipped to 56 in October from 56.7 the previous month, less than initially reported.
While European Central Bank President Mario Draghi has urged caution in weaning the economy off monetary stimulus as inflation remains low, he also suspected that more “growth surprises” may be in store. Economic confidence surged to its highest in almost 17 years last month, with neither political uncertainty in Catalonia nor a stronger euro seeming to significantly weigh on optimism.
Companies are “focusing on buoyant demand from domestic markets, remaining firmly in expansion mode in line with expectations of stronger business and consumer spending,” said Chris Williamson, chief economist at IHS Markit.
All major euro-area countries covered in the survey had growth rates above their long-term averages, with France recording the highest output reading in October.
In the euro area, a measure of job creation rose to the highest level since July 2007 while new orders expanded at the fastest pace in more than six years.
Strong demand stretched capacity and led companies to increase charges.
“Some price rises merely reflect the pass-through of higher costs, but companies are also reporting stronger pricing power as demand conditions continue to improve,” said Williamson. That “suggests underlying inflationary pressures are becoming more engrained.”