Euro zone businesses end third quarter on a high note
Euro zone private businesses ended the third quarter with much stronger growth than predicted, bolstered by manufacturers, who had their best month since early 2011, a survey showed on Friday.
That growth, alongside rising inflationary pressures, is likely to increase expectations the European Central Bank will announce plans next month to reduce its monthly spending on quantitative easing.
IHS Markit’s euro zone Flash Composite Purchasing Managers’ Index for September, seen as a good guide to economic growth, bounced to 56.7 from August’s 55.7, comfortably above the 50 level that separates growth from contraction.
September’s reading was above all expectations in a Reuters poll, which had forecast a dip to 55.5.
“It was a super manufacturing performance. We are well- placed for a strong fourth quarter as well ... in this broad-based upswing,” said Chris Williamson, chief business economist at IHS Markit.
Williamson said the PMI pointed to third-quarter growth of 0.7 percent, faster than the median forecast in a Reuters poll last week for 0.5 percent.
The upturn came despite businesses increasing prices at one of the fastest rates this year. The output price index rose to 52.6 from 52.1. A PMI covering manufacturers soared to 58.2 from 57.4, confounding expectations for a fall to 57.1 and chalking up its highest reading since February 2011. An index measuring output rose to a 6 1/2-year high of 59.5 from 58.3.
Suggesting the solid pace would be maintained next month, factories built up a surplus of orders at the steepest rate in the sub-index’s 15-year history. The backlogs of work index was 57.8, compared with August’s 57.1.
“Firms are scrambling to expand capacity as fast as possible to meet order-book growth and rising backlogs is presenting them with huge problems,” Williamson said.
Companies in the bloc’s dominant service industry also had a much better month than expected - their PMI rose to 55.6. A Reuters poll had predicted no change from August’s 54.7. With activity thriving and new orders flooding in, their optimism also increased. The business expectations index jumped to 66.1 from 64.0.