Euro Area’s Resilient Services Puts Mild Gloss on Economy

(Bloomberg) -- Economic activity in the euro area was stronger than expected in February as an improving services sector managed to offset a slump in industry.

Services expanded across the 19-nation euro area, bolstered by gains in Germany, Ireland and Spain, according to IHS Markit. That pushed a composite Purchasing Managers’ Index to 51.9, the highest in three months. An initial reading was for an increase to 51.4.

There were upward revisions to German and French numbers, and the euro pared its decline against the dollar. It was down 0.1 percent to $1.1325 as of 11:09 a.m. Frankfurt time.

Despite the slight improvement in the figures, IHS Markit said readings so far this quarter mean the euro-zone economy could struggle to beat the 0.2 percent expansion seen in last three months.

“While the service sector is showing greater resilience, inflows of new business remained worryingly weak, providing little hope for any noticeable improvement in performance in the coming months,” said Chris Williamson, chief business economist.

A separate report showed euro-area retail sales rebounded at the start of the year, driven by a surge in mail-order and Internet business.

The data come as European Central Bank officials prepare for their policy meeting on March 7. The ECB will probably cut its growth and inflation projections, and there’s speculation whether persistently weak data will warrant new stimulus or a change in plans to raise interest rates.

While there have been reports of rising wage pressures recently -- encouraging signals for policy makers struggling to lift inflation -- weaker demand in manufacturing is causing a slowdown in input costs as well as output charges.

Business confidence improved in February despite slowing global growth, rising geopolitical concerns and risks including trade wars, Brexit and tightening financial conditions.

--With assistance from Simbarashe Gumbo and Zoe Schneeweiss.

To contact the reporter on this story: Carolynn Look in Frankfurt at clook4@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Jana Randow

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