Business activity in the euro area registered its fastest growth in four years

Business activity in the private sector of the euro area registered its fastest growth in four years this month, according to the data from the Purchasing managers index (PMI), quoted by Reuters. The survey results provide solid evidence that the economic recovery in the region stabilizes.

The good data for the entire currency union is supplemented by individual PMI indices for the two largest economies in the region - Germany and France. Companies in the service sector and manufacturing in both countries reported higher than expected growth. These data are particularly reassuring against the instability in the financial markets due to the disagreement between Greece and its creditors. 

PMI index drawn up by surveys among thousands of companies in the region has grown to 54.1 points in June from 53.6 the previous month. So the index reached its highest level since May 2011. "This is a decent rise in terms of business activity, demand and jobs. The data show economic growth of 0.4% in the second quarter," said Chris Williamson, chief economist for Markit, who prepared the survey. The index remains above the level of 50 points that separates contraction from growth for a second full year.

To meet the increased demand, firms continued to hire more staff. However, the employment sub-index fell slightly to 51.9 points compared to the four-year high of 52.3 reached in May. PMI index of the services sector, which is fundamental in the economy of the euro area, increased from 53.8 to 54.4 points, which surpasses all preliminary estimates. The indicator of the production sector also rose from 52.2 to 52.5 points, which is the highest level of more than one year.

While firms continued to lower their prices in June, although it was the third month in which ECB’s program applies to print money and stimulate inflation. Sub-index of producer prices fell by 49 percentage points compared to 49.3 the previous month. In April the eurozone emerged from a period of deflation, and in May consumer prices rose by 0.3% due to the weak euro. Williamson warns that core inflation, which excludes goods with volatile prices such as fresh food and fuel remains very weak.