Euro zone growth robust in October, prices pressures stirring: PMI

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© Reuters. FILE PHOTO: ECB headquarters in Frankfurt© Reuters. FILE PHOTO: ECB headquarters in Frankfurt

By Jonathan Cable

LONDON (Reuters) – The euro zone’s economy is on track for a strong finish to 2017 and firms are passing on more of their costs to consumers as pricing power increased, a survey showed on Monday.

IHS Markit’s final composite Purchasing Managers’ Index for the euro zone fell to 56.0 in October last month from September’s 56.7, pipping an earlier flash estimate of 55.9 and comfortably above the 50 mark that separates growth from contraction.

“The final euro area PMI was revised up marginally from the flash to leave euro area growth looking healthy at the beginning of Q4,” said Cathal Kennedy at RBC Capital Markets.

Earlier figures showed growth remained solid in Germany and France, the bloc’s two biggest economies, but slowed in Italy, suggesting a recent flurry in economic activity there may be petering out.

Growth in Spain’s key services sector fell to its lowest in nine months as the political crisis in Catalonia weighed heavily on business sentiment.

But with the euro zone enjoying a brisk economic recovery after years of stagnation, an investor sentiment index beat analyst expectations and climbed to its highest level since July 2007 in November, research group Sentix said on Monday.

IHS Markit said the PMIs point to euro zone economic growth of 0.6-0.7 percent in the closing quarter of 2017, better than the 0.5 percent predicted in a Reuters poll last month. [ECILT/EU]

New orders growth accelerated despite firms increasing their prices at the joint fastest rate since the middle of 2011. The output price index rose to a seven-month high of 53.1 from 52.7.

More expensive energy and intermediate goods pushed up euro zone prices at factory gates more than expected in September, data from the European Union’s statistics office showed on Monday.

“Some price rises merely reflect the pass-through of higher costs, but companies are also reporting stronger pricing power as demand conditions continue to improve, which suggests underlying inflationary pressures are becoming more engrained,” said Chris Williamson, chief business economist at IHS Markit.

Robust growth alongside increasing price pressures will be welcomed by policymakers at the European Central Bank who last month took a step toward weaning the euro zone off loose money.

A PMI covering the bloc’s dominant service industry fell to 55.0 from 55.8, ahead of a preliminary reading of 54.9 and offsetting the strongest month in almost seven years for manufacturers.

But indicating they expect activity to increase, firms took on staff at the second fastest rate in nearly 10 years. The employment index jumped to 54.2 from 53.7.

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