Euro zone businesses end first quarter on a higher note - PMIs

Tuesday 22 March 2016 18.38
Markit's flash composite Purchasing Managers' Index jumped to 53.7 this month from February's reading of 53
Markit's flash composite Purchasing Managers' Index jumped to 53.7 this month from February's reading of 53

Euro zone business activity ended the first quarter on a higher note, suggesting extra stimulus from the European Central Bank may already be having a positive effect. 

The ECB cut interest rates again and bolstered its asset purchase programme earlier this month as part of an ongoing battle to drive up growth and inflation in the euro zone. 

"There are some signs that perhaps the stimulus is being perceived by companies as a springboard for better growth coming up in the rest of the year," said Chris Williamson, chief economist at survey compiler Markit. 

Markit's flash composite Purchasing Managers' Index, regarded as a good growth indicator, jumped to 53.7 this month from February's 53, which was the lowest reading since the start of 2015. 

The latest result was above all forecasts in a Reuters poll, which had a median prediction of 53. Any reading above 50 denotes growth. 

Williamson said the PMI pointed to first quarter GDP growth of 0.3%, slightly weaker than a Reuters poll prediction earlier this month of 0.4%. 

However, as they have for all but two months in the last four years, firms cut prices to stimulate trade and the output price index only nudged up to 48.6 from 48.5. 

Euro zone inflation was -0.2% in February, nowhere near the ECB's close to 2% target.

The PMI covering the bloc's dominant service industry also came in above expectations for no change from February's 13-month low of 53.3. It jumped to 54, matching the most optimistic forecast in a Reuters poll. 

But some of the activity was driven by the running down of old orders. A backlogs of work index slipped below 50 for the first time since May, dipping to 49.8 from last month's break-even point. 

Manufacturers also had a better than expected month. Their PMI rose to 51.4 from February's one-year low of 51.2, just pipping the 51.3 median forecast. 

An output index, which feeds into the composite PMI, climbed to 52.7 from 52.3. 

Suggesting April may see little improvement, factories barely increased headcount this month. The employment sub-index fell to 50.5 from 51.0, its lowest reading since late-2014. 

"There is an underbelly of weakness still prevalent in the economy but hopefully the ECB's extra stimulus should mean that things turn around pretty quickly," Mr Williamson said.