Activity in the eurozone unexpectedly returned to growth for the first time since June, according to a survey that could reinforce the European Central Bank’s resolve to raise rates.
The S&P Global’s flash eurozone composite purchasing managers’ index, a measure of activity in manufacturing and services, rose to 50.2 in January from 49.3 in the previous month, figures on Tuesday showed.
The rise, the third consecutive monthly increase from the low reached in October, was higher than the 49.8 forecast by economists polled by Reuters. It was also above the 50 mark, which indicates a majority of businesses reporting an expansion compared with the previous month.
“A steadying of the eurozone economy at the start of the year adds to evidence that the region might escape recession,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
Fears over energy had eased since the low in October as prices fell, helped by generous government assistance, he added.
Supply chain stress has also waned while the reopening of the Chinese economy has helped restore confidence in the broader global economic outlook for 2023.
Employment growth also picked up momentum as businesses prepared for a better than expected year ahead, the survey showed, based on data collected between Jan 12 and 20.
The report warned that the strength of the labour market “will only serve to reinforce the stubbornness of inflation”.
Input cost inflation cooled further thanks to alleviating supply chain stress but average selling price inflation for goods and services ticked higher, reflecting still-elevated cost growth and upward wage pressures.
The resilience of the eurozone economy and persistent high price pressures are likely to support the case for more interest rate increases.
Christine Lagarde, ECB president, said on Monday that interest rates would have to rise “significantly at a steady pace” to reach levels that were sufficiently restrictive to return inflation to the bank’s 2 per cent target.
Markets are pricing two 50 basis-point increases at the next meetings in February and March, which would take the deposit rate to 3 per cent.
