Eurozone Private Sector Expands In February

(RTTNews) - The euro area private sector managed to grow for the second straight month in February with the deepening contraction in France being offset by a moderate rebound in Germany, flash data from the purchasing managers' survey by S&P Global showed on Friday.

The flash composite output index remained unchanged at 50.2 in February. Economists had forecast the indicator to rise to 50.5. A reading above 50.0 indicates expansion.

In January, the private sector output increased for the first time in five months and the latest data signaled a sustained but marginal growth in February.

The main source of growth was the service sector where activity increased for the third straight month but at the weakest extent in the current sequence. Meanwhile, manufacturing production continued to fall in February.

The services Purchasing Managers' Index fell unexpectedly to 50.7 in February from 51.3 in the previous month. The reading was seen at 51.5.

At 47.3, the manufacturing PMI rose to a nine-month high from 46.6 in January. The score was forecast to rise to 46.9.

New orders decreased for the ninth consecutive month and the pace of decline was sharper than in January. New business from abroad also decreased in February.

Employment fell at a faster pace in February. Staffing levels decreased as a marked reduction in manufacturing workforce numbers outweighed a slight rise in services employment.

The pace of input cost inflation accelerated at the fastest pace since April 2023. The increase was driven by services, where the rapid pace of growth was unchanged from January. Manufacturing input prices climbed the most in six months but at a moderate pace.

Output price inflation accelerated to a ten-month high. A strong growth in charges in the service sector contrasted with a marginal fall in manufacturing selling prices.

Manufacturers continued to lower their purchasing activity, in response to weak customer demand. A slower drop in stocks of purchases was also recorded. Suppliers' delivery times shortened for the first time in six months due to muted demand for inputs.

Companies continued to forecast growth over the coming year but optimism dipped to a three-month low. Sentiment weakened across manufacturing and services.

"With just two weeks to go before the ECB meeting, the price front is sending bad news," Hamburg Commercial Bank Chief Economist Cyrus de la Rubia said.

The price indices for the services sector have risen or remained at a high level. The statements by the ECB President Christine Lagarde can be interpreted as meaning that inflation can only be considered defeated once the services inflation is under control, said de la Rubia.

Capital Economics economist Adrian Prettejohn said price indices of PMI provide more support for those policymakers at the ECB who are making a case for a pause or end to the rate cutting cycle after one more cut in March.

The ECB had lowered its interest rates for a fourth policy session in January. The deposit rate was reduced by 25 basis points to 2.75 percent, the lowest level since February 2023.

The survey showed that the largest euro area economy, Germany, recorded a second consecutive monthly rise in output, with the pace of expansion hitting a nine-month high. In contrast, France logged a marked and accelerated reduction in business activity. Meanwhile, the rest of the euro area posted a solid expansion in output.

Germany's private sector growth picked up in February as services activity showed a steady expansion and manufacturing contracted at the slowest pace in two years, the survey showed.

The flash composite output index came in at 51.0 in February, up from 50.5 in January. This was the highest reading in nine months and was above forecast of 50.8.

The services PMI fell to 52.2 from 52.5. The score was slightly below economists' forecast of 52.4. The manufacturing PMI registered 46.1 in February, up from 45.0 in January. The reading was expected to climb to 45.4.

France's private sector registered a deeper contraction in February as the drag from the service sector intensified. The HCOB flash composite output index dropped unexpectedly to 44.5 in February from 47.6 in January. The score signaled the steepest fall since September 2023.

The services PMI slid to a 17-month low of 44.5 from 48.2 in January, while it was forecast to climb to 48.8. Meanwhile, the manufacturing PMI hit a nine-month high of 45.5 in February, up from 45.0 in January. The reading was expected to rise moderately to 45.3.