Economic Activity Jumps to Six-Month High in the Euro Zone

(Bloomberg) — Euro-zone economic activity unexpectedly accelerated to the fastest pace in six months in February, with services proving resilient as factories battled challenges including the coronavirus outbreak.

The reading in a survey by IHS Markit comes a day after European Central Bank President Luis de Guindos said the bloc’s relatively strong labor market and ultra-low interest rates are supporting growth.

“The expansion is being led by welcome resilience in the service sector but manufacturing is also showing encouraging signs of pulling out of the downturn that has plagued producers for over a year,” said Chris Williamson, chief business economist at IHS Markit.

In the report, a composite purchasing managers index edged up to 51.6 in February, signaling quarterly economic growth of about 0.2%. Manufacturing continued to shrink, even if at a slower pace.

The question is how long whether new risks such as the coronavirus outbreak will spark a new slump.

In one worrying development, inflows of new business into the services sector grew more slowly than in the previous two months. That could be linked to disruption from the disease to businesses such as travel and tourism.

In addition, a number of manufacturing companies are seeing their supply chains disrupted as factories in China shut.

ECB Chief Economist Philip Lane has warned the economy could experience a “pretty serious short-term hit” from the outbreak.

The full immediate impact “may not yet be apparent,” Williamson said. “In particular, the widespread delivery delays seen in February bode ill for production in March unless new deliveries can be secured.”