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Eurozone growth cools in February, but business optimism ticks higher

Business activity growth in the eurozone pulled back in February from the nearly 12-year high of January, though business optimism for the coming year ticked higher, flash Purchasing Managers' Index data from IHS Markit showed.

The bloc's headline PMI fell to the lowest level in three months to 57.5 in February from the prior month's 58.8. The services PMI activity index edged to a two-month low in February to 56.7 from 58.0 in January while the manufacturing PMI was at a four-month low of 58.5 during February, compared to 59.6 in the prior month.

"February saw the eurozone's growth spurt lose a little momentum, but the rate of expansion remains impressive, putting the region on course for its best quarter for almost 12 years," Chris Williamson, chief business economist at IHS Markit, said. "A rise in business optimism about the year ahead to a joint-survey high bodes well, suggesting that companies are expecting the slowdown to be short-lived."

Growth in new orders slipped to the lowest in five months during February and unfinished work continued to accumulate during the month. Employment in the bloc grew at one of the highest rates seen over the past 17 years, according to the survey, though the rate of increase eased slightly.

Pricing pressures remained elevated for the euro area due to factors including stronger demand and upward salary pressures, though both output charges and input prices rose at a slower monthly rate in February.

Meanwhile, French flash composite output index fell to a four-month low of 57.8 in February from 59.6 in January. The flash services activity index slipped to 57.9 from 59.2 and the manufacturing PMI dipped to 56.1 in February from 58.4 of January. "Private-sector growth in France shifted down a gear in February, with the rate of expansion in output and new orders each hitting four-month lows," IHS Markit's Alex Gill said. Business confidence in the private-sector during February was the most marked in nine months.

The rate of employment growth in France quickened month on month in February as client demand grew. Despite an improvement in operating capacity, unfinished work continued to pile up in France, hinting at further job growth in the coming months. "These trends will boost hopes of a further erosion of the country's stubbornly high unemployment rate, which fell to 8.9% in the three months to December 2017," Gill wrote.

For Germany, the flash composite output index and services PMI activity index saw three-month lows at 57.4 and 55.3, respectively, in February. The indexes stood at 59.0 and 57.3, respectively, in the prior month. Flash manufacturing PMI dropped to a six-month low in February at 60.3, compared to 61.1 in January.

Growth in new orders slowed for the services and manufacturing sectors in Germany during February, while backlogs of work also rose slowly during the month. Private-sector employment increased in February as optimism towards future business activity was the highest since July 2012. Meanwhile, the rate of inflation in Germany during February was the second-fastest since July 2008, the survey showed.

"The performance so far in the first quarter remains better than that seen in final three months of 2017, which saw GDP rise 0.6%," Phil Smith, principal economist at IHS Markit, said about the survey results for Germany. "IHS Markit is currently forecasting an improved outturn of 0.9% in quarter one."