Euro zone business growth hits 15-year high as demand unleashed

    Eurozone business growth accelerated at the fastest pace in 15 years in June, as the easing of lock-in measures freed up fivefold demand and led to a boom in the dominant services sector, as well as rising price pressures, according to a survey.

    As the coronavirus spread rapidly, governments imposed severe restrictions, encouraging citizens to stay home and forcing much of the services sector to close. However, after a slow start, the vaccination effort in the area is increasing and the burden on health services has been reduced, allowing some restrictions to be lifted on service companies – which have already adapted to new operating conditions -.

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    This led to a rise in IHS Markit’s Flash Composite Purchasing Managers’ index, considered a good guide to financial health, to 59.2 from 57.1, its highest reading since June 2006. It was ahead of 50 signs that separate growth from shyness and the Reuters poll estimate for 58.8.

    “Rapid vaccine availability and reduced case numbers are reducing restrictions and consumers are feeling more confident,” said Willem Sels, CEO of HSBC Private Banking and Wealth Management.

    “Services, and consumption in particular, are seeing strong momentum and are now the number one engine of European economic growth.” The PMI of flash services rose to 58.0 from 55.2, the highest since January 2018 and above the forecast of the 57.8 Reuters poll. Indicating that the momentum will continue, the new business index rose to a 14-year high of 57.7 from 56.6.

    The latest easing of restrictions in Germany and France, the bloc’s two largest economies and the only ones reporting PMIs flash, has led to a rise in services there. In Britain, outside the eurozone and the European Union, private sector growth cooled slightly from the all-time high in May when more coronavirus restrictions began to be lifted.

    Meanwhile, the eurozone’s expansion of productive activity was in line with the May record, with the June PMI estimate remaining stable from the May final reading of 63.1, confusing the Reuters poll estimate for a drop in 62.1.

    An indicator that measures the output that powers the composite PMI pushed up to 62.4 from 62.2. But supply disruptions and huge demand have made it a market seller for the needs of raw material factories. The production input price index rose to 88.0 from 87.1, the highest since the start of the survey in June 1997.

    “Inflationary pressures continued to rise as input prices rose in June,” Bert Colijn told ING. “The problem with these surveys is that they measure the number of companies showing higher prices, not its extent. In this opening phase, this could overestimate inflation expectations.”

    The European Central Bank is likely to face these inflationary pressures and will continue to relax monetary policy this year to provide support to the economy, according to a Reuters poll earlier this month.

    Amid hope that the worst of the pandemic is behind the block, overall optimism has risen to its highest level since IHS Markit began collecting data in July 2012. The composite futures index rose to 71.6 from 70 , 6.

    Newsvibe24 Source