Eurozone Growth Rebounds in February

The eurozone economy is refusing to crumble and activity even rebounded this month, according to a closely-watched survey., Financial Times 2/22/2008 6:34:17 AM

Purchasing managers’ indices for the 15-country region rose unexpectedly in February, pointing to a recovery in confidence after recent financial market turmoil.

However the survey still pointed to a gradual slowdown in growth, which would increase the pressure on the European Central Bank to follow the US Federal Reserve and start cutting interest rates, analysts said.

Service sector growth had slowed to near stagnation in January but rebounded significantly this month, according to the survey. The index for manufacturing fell, however, although still showed no signs of any dramatic decline in growth.

Overall, the composite” purchasing managers’ index rose from 51.8 points in January to a two-month high of 52.7. A figure over 50 is regarded as consistent with growth.

The results could encourage the ECB to keep a hawkish tone in its comments – especially with eurozone inflation at a 14-year high of 3.2 per cent - way beyond its target of an annual rate below but close” to 2 per cent.

Higher oil prices are threatening to force upward revisions next month to ECB inflation forecasts and Jean-Claude Trichet, ECB president, has made clear that combatting inflation remains the central bank’s top priority.

But analysts also expect the ECB to lower next month its eurozone growth forecasts. The crucial judgement the central bank will have to make is whether a slowdown in growth will help keep inflationary pressures in check.

Eurozone industrial orders, meanwhile, fell by 3.6 per cent in December, according to Eurostat, the European Union’s statistical office. Such weakness could feed through into weaker production figures.

Eurozone Growth Rebounds in February