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Eurozone growth remains muted amid decline in manufacturing

Staff Writer | February 22, 2019
Although output across the eurozone private sector increased at a slightly faster pace in February, the rate of expansion remained muted.
German factory
Europe   The IHS Markit Eurozone Composite PMI posted 51.4 in February
Moreover, the manufacturing sector weighed on overall economic performance, falling into contraction during the month.

The IHS Markit Eurozone Composite PMI posted 51.4 in February, up from 51.0 in January and the highest in three months, according to the preliminary ‘flash’ reading.

The flash estimate is typically based on approximately 85% of the final number of replies received each month.

Despite quickening from the five-and-a-half year low seen at the start of the year, the rate of expansion remained modest.

Overall growth was centred on the service sector where activity also rose at the fastest pace in three months amid an improving picture in Germany and stabilisation in France.

On the other hand, euro area manufacturing production decreased for the first time since June 2013.

While business activity rose at a faster pace, there remained signs of demand weakness as new orders dipped for the second month running.

As with output, the manufacturing sector was the main source of weakness in new business.

Manufacturing new orders decreased to the greatest extent in almost six years, with new export orders also falling at a faster pace than in January.

Employment remained a bright spot in February, in spite of reductions in both new orders and outstanding business.

Staffing levels increased at a solid pace that was faster than at the start of the year.

The rate of job creation quickened in the service sector and held steady in manufacturing.

Data on business sentiment also provided cause for optimism, with confidence regarding the 12-month outlook at a four-month high.

Optimism dipped in the manufacturing sector, however.

There were signs of inflationary pressures waning midway through the first quarter of the year.

The rate of input cost inflation softened for the fourth month running and was the weakest for a year-anda-half.

Output prices also rose at the slowest pace in 18 months.

Softer inflation was registered across both monitored sectors.

The divergence in performance between the manufacturing and service sectors in February was most evident in Germany.

Service providers in the euro area’s largest economy posted a marked and accelerated rise in activity on the back of a pick-up in new business growth.

On the other hand, industry moved into contraction territory, with output down for the first time in almost six years and new orders decreasing sharply amid continued reports of issues in the auto sector.

There were signs of stabilisation in France despite reports of lingering disruption caused by the ‘yellow vest’ protests.

Services activity decreased only fractionally, while manufacturing output stabilised following two months of decline.

Outside the two largest eurozone economies output growth was only modest, slowing for the second month running to the weakest since November 2013.

Rates of expansion eased across both manufacturing and services.