Eurozone private sector returned to growth at the start of the year after six consecutive months of contraction, raising hopes that the region might escape recession, flash survey results from S&P Global showed on Tuesday.
The flash composite output index rose more-than-expected to 50.2 in January from 49.3 in December. The reading was forecast to climb to 49.8.
The index improved for a third straight month, breaking the 50.0 no-change mark for the first time since last June.
A steadying of the eurozone economy at the start of the years adds to evidence that the region might escape recession, Chris Williamson, chief business economist at S&P Global Market Intelligence said.
“The survey undoubtedly brings welcome good news to suggest that any downturn is likely to be far less severe than previously feared and that a recession may well be avoided altogether,” Williamson added.
Earlier this month, the World Bank projected the euro area economy to remain flat this year and expand 1.6 percent in 2024.
The survey showed that the services Purchasing Managers’ Index advanced to a six-month high of 50.7 from 49.8 in the previous month. The expected reading was 50.2.
At 48.8, the manufacturing PMI hit a five-month high and up from 47.8 in December. The reading was also above economists’ forecast of 48.5.
Order book registered reduced rate of contraction, marking the slowest fall in the current seventh straight month of decline. And backlogs of orders continued to fall in January.
On the other hand, employment growth gained momentum as firms prepared for a better than expected year ahead.
On alleviating supply chain stress, input cost inflation cooled further. However, average selling price inflation ticked higher.
Business expectations rose to the highest since June 2020 driven by improving prospects for the year ahead.
With employment intentions and price pressures still high, there is nothing here to stop the European Central Bank from raising rates by a further 100 basis points over the next two months, and perhaps further beyond that, Capital Economics’ economist Andrew Kenningham, said.
Within the euro area, Germany reported only a marginal drop in output. The composite output index hit a seven-month high of 49.7, up from 49.0 in December.
The movement towards stabilization owed to signs of improvement in the service sector. The corresponding index rose to 50.4 in January from 49.2. Meanwhile, the manufacturing PMI fell slightly to 47.0 from 47.1 in the previous month.
Meanwhile, output fell for a third successive month in France, with the composite index slipping to 49.0 from 49.1. Nonetheless, the overall rate of contraction was only marginal.
The service sector business activity recorded its sharpest decline since March 2021.The PMI came in at 49.2, down from 49.5 in the previous month. On the other hand, the factory PMI improved to 50.8 from 49.2 in December.