A woman walks past the entrance of a restaurant in Nice, France. File/Reuters
Economic growth in the eurozone jumped sharply in February as coronavirus restrictions were eased, a key survey showed on Monday.
Growth accelerated to a five-month high, IHS Markit said in its closely watched monthly survey — but it also noted that persistent supply constraints and soaring energy prices also pushed inflation to a record level.
Its purchase managers’ index (PMI) surged 3.5 points to 55.8, higher than the 52.3 recorded in January. A figure above 50 indicates growth.
The rise was attributed to the eurozone — the 19 EU countries using the euro — exiting two months of tough restrictions designed to slow the spread of the Omicron variant.
Omicron is now the dominant strain in Europe, but governments regard it as less grave than previous variants because widespread vaccinations and booster jabs have muted its impact.
After two months of curbs that hit the eurozone economy, “February saw these restrictions ease to the lowest since November,” IHS Markit said.
The service sector led the newfound optimism, as increased travel and tourism pushed it to its highest level since last November.
Manufacturing increased “also accelerated slightly, attaining the fastest expansion since last September, thanks in part to improved supply availability” and a rise in demand.
However, supply constraints remained, causing backlogs, and average prices for goods and services spiked to the highest level recorded in the PMI surveys.
“Soaring energy costs and rising wages have added to inflationary pressures, resulting in the largest rise in selling prices yet recorded in a quarter of a century of survey data history,” said IHS Markit’s chief economist, Chris Williamson.
“The intensification of inflationary pressures will add to speculation of an increasing hawkish stance” at the European Central Bank, he said.
The survey showed that growth in the eurozone’s powerhouse Germany was at a six-month high, with an index reading of 56.2.
The second-biggest economy, France, was doing even better, with growth at an eight-month high and an index reading of 57.4.
UK private sector grows: Activity in Britain’s private sector picked up at the fastest pace since June 2021 this month, as spending on travel, leisure and entertainment rose after an easing in the Omicron wave of coronavirus cases, a survey showed on Monday.
However, businesses’ costs rose at the second-fastest rate since the IHS Markit/CIPS composite Purchasing Managers’ Index (PMI) began in 1998, which will add to the Bank of England’s (BoE) concerns about the persistence of soaring inflation.
The composite PMI’s headline output index rose to 60.2 in February from 54.2 in January, its highest in eight months and above all forecasts in a Reuters poll of economists.
The index sank to an 10-month low of 53.6 in December when Britons were advised to work from home due to Omicron and many chose to cut back on socialising in the run-up to Christmas.
February’s rise was driven by an increase in the flash services PMI to 60.8 from 54.1 in January, while the manufacturing PMI was unchanged at 57.3.
“Private-sector companies reported another steep increase in incoming new work in February,” IHS Markit said. “Stronger client demand was widely linked to improving confidence about the UK economic outlook and roll back of pandemic restrictions.” Britain’s economy had just returned to its pre-pandemic size before it was hit by the Omicron variant in December.
The BoE expects the economy to recover its size at the end of 2019 by March.
But it sees headwinds to further growth from a squeeze on household living standards as inflation is on course to hit a 30-year high of more than 7% in April when regulated energy prices rise.
Monday’s PMI showed the composite input cost index rose to 81.8 from 80.2 – the second highest reading on record after November’s 83.2. Higher wages, energy bills and raw material costs all contributed to rising operating expenses.
Hiring rose at the fastest rate since October. Tightness in the labour market, where there is a record number of job vacancies, is one of the main reasons why the BoE fears that high inflation could be slow to dissipate.
The central bank has raised rates twice since December, and financial markets expect a further increase from 0.5% to 0.75% or even 1% on March 17 after the BoE’s next meeting.