LONDON (Reuters) – Euro zone business unexpectedly returned to growth in January, adding to signs that the bloc’s slowdown may not be as deep as feared and that the currency union may escape recession, a study said.
S&P Global’s Flash Composite Purchasing Managers’ Index (PMI), seen as a good gauge of overall economic health, rose to 50.2 this month from 49.3 in December.
January was the first time the index topped the 50 mark, which separates growth from contraction, since June and the reading was ahead of the Reuters poll’s median forecast of 49.8.
“This study undoubtedly brings good news that will suggest that any downturn is likely to be worse than previously feared and that a recession may be avoided altogether,” said Chris Williamson, chief economist at S&P Global Market Intelligence.
A mild winter so far, lower gas prices and recent economic data meant some forecasts for quarterly growth in a Reuters poll published on Monday were upgraded although a recession was still forecast.
In a sign of growing optimism, firms increased headcount at the fastest rate this month. The employment index rose to a three-month high of 52.5 from 51.9 in December.
The bloc’s core services PMI also surprisingly rose, entering a six-month high of 50.7. It was 49.8 in December and a Reuters poll had forecast 50.2.
Despite consumers facing huge debt, demand has slowed slightly. The new business index was just shy of 49.8, up from 48.4.
“The region is not out of the woods yet, as demand continues to decline — it’s just going down at a reduced rate,” Williamson said.
Factory employment also showed improvement but declined. The manufacturing PMI rose to 48.8 this month from 47.8, ahead of the 48.5 Reuters poll forecast.
The benchmark score for the composite PMI index jumped to a seven-month high of 49.0 from 47.8.
As in the services PMI, the index of input prices fell but firms increased their costs at a faster rate. The output price reading rose to 61.4 from 61.2 but was still well below the average of the past three years.
As it continues its fight against high inflation, the European Central Bank will raise interest rates by 50 basis points at each of its next two meetings, according to a Reuters poll.
Although the euro zone’s central bank has been raising rates at the fastest pace on record, it has so far failed to bring inflation anywhere near its 2% target. (This story has been corrected to change December to January in the first paragraph)
(Reporting by Jonathan Cable; Editing by Susan Fenton)