Euro zone businesses stepped up pace in February but trouble brewing: PMI

LONDON (Reuters) – Euro zone businesses largely withstood the impact of the coronavirus in February, growing at their fastest pace in six months, though a survey on Wednesday painted a gloomier outlook, with falling export demand and disruptions to supply chains.

IHS Markit’s Composite Purchasing Managers’ Index for the euro zone, the first key gauge of February’s economic health published, nudged up to 51.6 from January’s 51.3. That matched an earlier flash reading and was well clear of the 50-mark separating growth from contraction.

“The euro zone economy showed resilience to disruptions arising from the coronavirus outbreak in February, but dig deeper into the data and there are signs that problems lie ahead,” said Chris Williamson, chief business economist at IHS Markit.

“Exports of both goods and services are now falling at an increased rate due to virus-related downturns in demand, and increasingly widespread delivery delays threaten future production.”

A sub-index measuring new export business dropped to 47.5 from 49.2 and, as they have for a year, firms turned to completing backlogs of work to drive some activity.

Williamson said the headline index pointed to first quarter GDP growth of 0.1-0.2% but cautioned there were clear downside risks and a likely weakening this month. A Reuters poll last month predicted growth of 0.2%. [ECILT/EU]

The PMI for the bloc’s dominant service industry rose to 52.6 from 52.5 but was below an earlier flash reading of 52.8.

Optimism among services firms waned last month and they increased headcount at a slower rate. The business expectations index dropped to 61.3 from January’s 61.9.