Eurozone services and manufacturing expanded faster than economists forecast this month, indicating that the bloc’s economy has continued to strengthen since the start of the second quarter.
A composite index based on a survey of purchasing managers in both industries rose from 53.1 last month to to 54 this month, London-based Markit Economics said yesterday.
That exceeded the median estimate of 53 predicted by economists in a Bloomberg News survey and was the highest reading in almost three years. A reading above 50 indicates expansion.
The report supports European Central Bank President (ECB) Mario Draghi’s view that the 18-nation eurozone is experience a “modest” recovery. Still, the crisis in the Ukraine and the strength of the euro are threatening to undermine growth, while Markit’s survey may reinforce policymakers’ deflation fears after showing that companies have cut prices for the 25th straight month
“The eurozone has started the second quarter on a solid footing,” Markit chief economist Chris Williamson said. “The big concern will be the outlook for prices. There will be growing fears that deflationary pressures are intensifying and that the ECB needs to respond with more than just words to the recent appreciation of the exchange rate.”
Markit said its eurozone manufacturing index rose to 53.3 this month from 53 last month, while a services gauge increased to 53.1 from 52.2 over the same period.
In Germany, a composite of both manufacturing and services posted a monthly rise to 56.3 from 54.3, while a French measure declined to 50.5 from 51.8 over the same period. The reports also pointed to easing price pressures, with the German survey showing that input costs were unchanged this month, ending a nine-month period of rising prices.
Draghi this month said that policymakers were “unanimous” in their willingness to use unconventional measures to fend off the risk of falling prices. Inflation in the eurozone slowed to 0.5 percent last month, which compares with the bank’s target of below, but close, to 2 percent.
The ECB president added that a stronger euro is undermining the fight against low inflation. The single currency has gained 6 percent against the US dollar over the past 12 months, curbing the price of imported goods and the competitiveness of the region’s exports.
Other indicators are also pointing to an improvement in the eurozone economy,with a report on Tuesday showing that consumer confidence increased to the highest in six-and-a-half years this month.
The Markit survey also showed that service sector employment swung back to growth this month, while payrolls at factories also increased.