Euro zone business gets off to strong start for 2014

LONDON Thu Jan 23, 2014 5:19am EST

A worker controls a tapping of a blast furnace at Europe's largest steel factory of Germany's industrial conglomerate ThyssenKrupp AG in the western German city of Duisburg December 6, 2012. REUTERS/Ina Fassbender

A worker controls a tapping of a blast furnace at Europe's largest steel factory of Germany's industrial conglomerate ThyssenKrupp AG in the western German city of Duisburg December 6, 2012.

Credit: Reuters/Ina Fassbender

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LONDON (Reuters) - The euro zone's private sector started 2014 in much better shape than expected, with stronger growth across the region marred only by a continued downturn in France, surveys showed on Thursday.

Markit's Flash Eurozone Composite Purchasing Managers' Index (PMI), which gauges business activity across thousands of companies and is seen as a good guide to economic health, jumped to 53.2 in January from 52.1 last month.

That was well above the 50 mark that denotes growth and was its highest reading since mid-2011, beating all forecasts in a Reuters poll of 25 economists.

"Hopefully the upturn we are seeing in Germany and across the rest of the region - which saw the strongest growth since around mid-2011 - will help pull France out of its current malaise," said Chris Williamson, chief economist at Markit.

An earlier composite PMI from France, the bloc's second-biggest economy, showed activity contracted for the third month running in January, although the downturn was less pronounced and both its services and factory PMIs beat expectations.

In neighboring Germany the composite PMI rose to a 31-month high.

Williamson said if the data held near current levels, the bloc's economy would grow around 0.3-0.4 percent in the first quarter, stronger than the 0.2 percent suggested in a Reuters poll last week.

New orders rose across the bloc for the sixth month, with the sub-index matching December's 30-month record of 52.2, indicating the PMIs might rise higher next month.

The upturn was broad based, with growth in both the services and manufacturing industries, and the data comes after Ireland and Spain saw strong demand for their bonds this month, while European shares climbed to fresh 5-1/2 year peaks on Tuesday as investors become increasingly bullish.

SERVICING FACTORIES

Markit's euro zone services PMI, which covers the bulk of the bloc's economy, climbed to 51.9 from 51.0, beating the median forecast in a Reuters poll for a more modest rise to 51.4.

However, some of that work was generated by firms cutting prices, as they have for over two years. The output price index nudged up to 48.5 from 48.2.

Inflation was just 0.8 percent across the euro zone in December, official data showed last week, well below the European Central Bank's 2 percent target ceiling.

But with a depleted ammunition box, having slashed its main interest rate to near zero and given more than 1 trillion euros of cheap cash to banks for a three-year period, the ECB's options to shore up the recovery are limited.

Still, extra support may not be needed.

The PMI for manufacturing bounced to a 32-month high of 53.9 from 52.7, beating all 39 forecasts in a Reuters poll. A gauge of manufacturing output, which feeds into the composite PMI, climbed to 56.7 from 54.9, its highest since April 2011.

With demand for manufactured goods at the strongest in nearly three years, factories built up backlogs of work at a faster pace, with the subindex notching up a rise to 53.9 from 52.6, a near three-year record.

(Editing by Hugh Lawson)

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