The private sector economy in the euro area unexpectedly returned to growth in early 2023, offering further signs that the region may be avoiding a recession and calming the European Central Bank’s (ECB) focus on underlying inflationary risks.
&P Global’s flash purchasing managers’ index rose to 50.2 in January, better than a Bloomberg poll’s predicted reading of 49.8 and the first time the reading has been above the 50 threshold since June, expanding from contraction separates.
A variety of factors, including slowing inflation, a warmer-than-usual winter in energy-poor Europe and an easing of supply chain restrictions, are fueling optimism in the 20-member currency zone.
While the slowdown in the economy adds evidence that the region may be emerging from a recession, “the region is far from over the hill,” said Chris Williamson, chief operating officer at S&P Global Market Intelligence.
The euro fell back to flat on the day and bunds hit new session highs after flash PMI data. Scores for the eurozone’s two largest economies stayed below 50, despite surprise expansions in Germany’s services and French manufacturing sectors.
“Demand continues to fall – just at a slower rate – and a rise in selling price inflation for both goods and services will encourage hawks to push for further monetary tightening,” Williamson said.
The European Central Bank has already hiked interest rates by 250 basis points and will make another half-point hike next week. What will happen after that is still unclear, with some pushing for a more phased approach while more dovish Governing Council members are calling for “significant” steps.
“The case for higher interest rates is further fueled by the uptick in job growth recorded during the month and signs of higher wages driving the recent surge in inflationary pressures,” said Mr said Williamson.
ECB President Christine Lagarde and other policymakers have been arguing for higher interest rates in recent days.
Hesitant optimism in the currency bloc contrasts with the UK, where companies signaled that output has fallen at the fastest pace in two years.
https://www.independent.ie/business/world/eurozone-economic-rebound-will-aid-european-central-banks-case-for-more-interest-rate-rises-42311511.html The economic recovery in the euro zone will support the European Central Bank’s case for further rate hikes