Eurozone private sector growth may keep the ECB in "hawkish mode"

(Alliance News) - Growth in the eurozone's private sector accelerated to a nine-month high in February, according to the latest survey results on Tuesday.

Bert Colijn, senior eurozone economist at ING, said the latest PMI print painted a picture of an economy that is "bouncing back from the sluggish performance in recent months".

The S&P Global flash eurozone composite purchasing manufacturers' index rose to 52.3 points in February from 50.3 in January.

Rising further above the 50-point mark that separates growth from contraction, it shows that growth has sped up.

Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, said the chunky rise in the eurozone's composite PMI suggests the economy will grow in the first quarter of 2023.

However, as the eurozone's labour market is still very tight and price pressures remain strong, Allen-Reynolds said the survey will reinforce European Central Bank policymakers' conviction that their tightening cycle "still has some way to go".

At its last policy-making meeting, the central bank said that it will raise rates by another 50 basis points in its next meeting in March.

Allen-Reynolds argued that today's print will likely give the ECB confidence for further hikes in May and beyond.

ING's Colijn also suggested that the print will keep the ECB on a hawkish footing. "The combination of better-than-expected economic activity at the start of the year and service sector inflationary pressures which remain elevated will likely keep the ECB in hawkish mode," he said.

The flash eurozone services PMI improved to an eight-month high of 53.0 points from 50.8. This improvement was the driving force behind the overall upturn.

A key factor in the services sector was a "revival of growth" in financial services activity, as well as a recovery in tourism & recreation, and media activity.

The eurozone manufacturing sector saw a worsening contraction, with the flash manufacturing PMI falling to a two-month low of 48.5 from 48.8. However, the manufacturing output index returned to growth, reaching a nine-month high of 50.4, from 48.9.

"Rising demand, healing supply chains, order book backlog reduction and improved confidence underpinned the upturn. The data are consistent with the economy expanding in the first quarter so far, with employment also continuing to rise," S&P Global commented.

The composite PMI is compiled from responses to surveys sent to around 5,000 eurozone companies in the services and manufacturing sectors, with data collected between February 10 and 17.

By Heather Rydings, Alliance News senior economics reporter

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