Services stimulate business activity in the EU

Business activity in the euro area continues to grow: according to S&P Global, in February, the PMI index (a leading indicator of GDP dynamics, a weighted average of indices in the manufacturing and services sectors) reached a nine-month high of 52.3 points after 50.3 a month earlier. Recall that the indicator value above 50 points means an increase in activity, below – a decline. The positive dynamics is largely due to the state of the service sector: its index, which after seven months of slowdown in the positive zone in January (50.8 points), rose to 53 points in February – according to S&P, due to increased activity in the financial services sector and revitalization of tourism.

In the industry, PMI also went up – 50.4 points (a nine-month high) after 48.9 points in January. In particular, the resumption of output growth in the manufacturing industry is associated with the emerging normalization of supply chains and a reduction in the average lead time for their implementation (for the first time since January 2020). The index of activity in the manufacturing sector of the eurozone in February, contrary to the expectations of analysts, although slightly, but fell to 48.5 points from 48.8 a month earlier. At the same time, the industrial output sub-index rose against the background of the first increase in the number of new orders since May.

In the major economies of Europe – Germany and France – an increase in composite indices is recorded for the first time since July and October 2022, respectively. PMI in France in February rose to 51.6 points (49.1 in January), while the decrease in activity in the industry partly offset the growth in the services sector. In Germany, the value of the indicator rose to 51.1 points (49.9 a month earlier), but a noticeable increase was also observed only in services, and the index in processing (46.5 points) was the lowest in three months.

Based on the dynamics of PMI, GDP growth in the euro area in the first quarter will be just under 0.3%, according to S&P Global. Although inflationary pressures continued to ease in February, the results of a survey of purchasing managers suggest a continued upward trend in prices in the services sector, partly due to accelerating wage growth in the euro area. Such dynamics will disturb the ECB and in the future may lead to further tightening of its policy, the agency’s experts believe.

Christina Borovikova