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Eurozone growth bounces back from Omicron hit

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Eurozone growth rebounded strongly in February, a key survey showed on Monday, but costs pressures continued to mount.
The flash IHS Markit Eurozone PMI Composite Index was 55.8 in February, compared to 52.3 a month earlier. The reading, a five-month high, was the largest monthly gain since March 2021.

The strong performance was attributed to the easing of pandemic restrictions, which boosted demand for travel, tourism and recreation, IHS Markit found.

The Services PMI Activity Index increased to 55.8 from 51.1 in January, while the Manufacturing PMI Output Index touched a five-month after rising to 55.6 from 55.4. Manufacturing PMI dipped to 58.4 from 58.7, however, a two-month low.

Future expectations, new orders and jobs growth also improved.

But while supply chain delays eased, which helped to reduce raw material input cost inflation, rising energy bills and increased wages led to the sharpest rise in average prices charged for goods and services in the survey’s history.

Chris Williamson, chief business economist at IHS Markit, said: “Although easing, supply constraints remain widespread and continue to cause rising backlogs of work. As such, demand has again outstripped supply, handing pricing power to producers and service providers. At the same time, soaring energy costs and rising wages have added to inflationary pressures.

“The strength of the rebound in business activity provides welcome evidence that the economy has so far shown encouraging resilience in the face of the Omicron wave, but the intensification of inflationary pressures will add to speculation of an increasing hawkish stance at the European Central Bank.”

Richard Amaro, senior economist at Oxford Economics, said: “The February reading represents a five-month high, providing important confirmation that Eurozone economic activity is quickly regaining growth momentum. The forward-looking indicators were also encouraging, as year-ahead sentiment rose in February to its strongest since June 2021.

“The weak start to the year means that Eurozone GDP growth is likely to remain modest in the first quarter, but [the] PMI chime with our forecast that solid growth will resume in the second quarter.”

Bert Colijn, senior economist, Eurozone, at ING, noted: “[The] PMI confirms that the economy is dealing with the pandemic better with each wave.

“Demand continues to soar for both services and manufacturing, with improvements from foreign and domestic buyers. This is also resulting in continued strong demand for employment in an already tight labour market. With a further easing of Covid restrictions underway, this puts upward pressure on our meagre first-quarter GDP forecast.

“Nevertheless, goods prices for consumers are still increasing faster than before. The high producer prices are being priced through to the consumer, which is set to translate to higher consumer goods inflation. This may ease towards the end of the year, but for the moment we see further gains to come.”

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