Euro zone factory PMI best since end-2006, services surge

Euro zone manufacturing activity grew at its fastest rate since the end of 2006, while the dominant service sector expanded at its quickest pace in over two years, surveys showed yesterday.

Markit's Purchasing Managers' Index (PMI) for the 16-nation bloc showed a bonzer month as manufacturing activity in Germany, its biggest economy, expanded at its fastest rate in 10 years and at the quickest rate in more than three years in France.

The euro zone's manufacturing sector drove a large part of the return to growth in the third quarter of last year and expanded at its fastest pace since December 2006 in March.

Markit's Eurozone Flash Manufacturing index jumped to 56.3 in March from 54.2 last month, beating forecasts for 54.0, while the output index climbed from 57.0 in February to 59.7 this month, a level it has only beaten once since July 2000.

Meanwhile, the services PMI, made up of surveys of around 2,000 businesses ranging from banks to hotels, bounced to 53.7 in March from 51.8 in February, not seen since November 2007.

This is the seventh month the index has been above the 50.0 mark that divides growth from contraction and smashed consensus expectations in a poll for 52.0.

"There are nice readings. We were worried about the divergence in manufacturing and services. Services lost its momentum in February but it seems to have regained that – it was probably weather-related," said Chris Williamson at Markit.

The composite index, made up from the services and manufacturing sectors and often used to predict overall growth, rallied to a 31-month high of 55.5 this month from 53.7 in February, outrunning the 53.8 predicted.

The euro zone economy escaped from its worst post-war recession in the third quarter of 2009 and Markit said the PMI figures were consistent with growth in the current quarter of 0.5 per cent. According to a poll, it will grow 0.4 per cent per quarter well into 2011.