Euro Area Hits Speed Bump on Road to Faster Economic Growth

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

A composite Purchasing Managers’ Index indicates that the 19-nation economy is expanding at a quarterly pace of 0.9 percent, the fastest in eight years, IHS Markit said on Wednesday. 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.

The euro slipped 0.2 percent to $1.2315 as of 10:42 a.m. London time and the region’s stocks retreated, with the Stoxx Europe 600 Index down 0.6 percent.

Policy makers 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 percent 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 report follows earlier releases showing business activity in France slowed in February while the German economy is on track for its fastest quarterly growth in seven years.
Source: Bloomberg

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