Euro-Area Economy Picks Up Speed as Orders and Optimism Surge

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  • Composite PMI climbed to 56 in February from 54.4 in January
  • German, French gauges both exceeded economist estimates

BMO's Gallo Sees Euro Strength Diminishing

Euro-area economic activity unexpectedly rose to the highest level in almost six years in February as the region’s recovery became more broad-based and inflationary pressures continued to intensify.

A composite Purchasing Managers’ Index climbed to 56.0 from 54.4 in January, putting the region on track for quarterly growth of 0.6 percent, IHS Markit said on Tuesday. Economists predicted the gauge would slip to 54.3. Inflows of new orders and surging optimism among firms point to a potentially stronger expansion in the coming months, the London-based company said.

“Companies are currently firmly focused on expanding in the face of rising sales and fuller order books,” said Chris Williamson, chief business economist at IHS Markit. “The ECB will be cheered by the signs of stronger growth and further upturn in price pressures, though will no doubt remain concerned that elections and Brexit could disrupt the business environment this year.”

The European Central Bank has committed to continue asset purchases until at least the end of the year to underpin the region’s firming recovery amid political risks. While a swath of data -- including inflation -- has signaled that the economy may be stronger than expected, stoking calls for an exit from unconventional policy, ECB President Mario Draghi has repeatedly argued that significant stimulus is still needed.

IHS Markit noted that a key difference between the German and French recoveries in February was prices. Whereas both saw input costs rising by the most since mid-2011, French firms didn’t pass these costs on to customers, while German output prices showed the largest monthly increase since June 2011.