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Eurozone February growth lower than estimated, but businesses stay optimistic

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Eurozone February growth lower than estimated, but businesses stay optimistic

Eurozone's business activity slowed more than estimated in February as compared to the nearly 12-year high of January, but business optimism for the next 12 months remained elevated, Purchasing Managers' Index data from IHS Markit showed.

The bloc's headline PMI fell to 57.1 in February, down from the flash estimate of 57.5 and the prior month's 58.8. The services business activity index edged to a three-month low of 56.2 in February, lower than the flash estimate of 56.7 and January's 58.0. Growth in the eurozone's manufacturing sector also cooled to a four-month low in February.

"The eurozone economy looks to have hit a speed bump in February after a stellar start to the year," Chris Williamson, chief business economist at IHS Markit, said. "So far this year, the PMI is indicating that the eurozone is on course for the strongest quarterly expansion for 12 years, consistent with GDP rising at a buoyant quarterly rate of 0.8% to 0.9%."

The level of new business rose during February, and so did the backlogs of work as companies in the bloc faced capacity pressures to meet demand. "It's also worth noting that there was some evidence of adverse weather affecting businesses in the northern regions, and there's evidence of capacity constraints limiting growth," Williamson added.

Business optimism remained elevated in February, close to January's eight-month high. Current growth and future business expansion expectations led to increased staffing levels in the euro area in February.

Pricing pressures also stayed high in February in the bloc as input costs and selling prices rose for all nations covered, the survey noted.

The composite output index for France reached 57.3 in February, lower than the 57.8 flash estimate and 59.6 in the prior month. The growth was the weakest seen since September 2017. The final services activity index slipped to 57.4 in February, compared to the flash estimate of 57.9 and January's 59.2. Despite the slowdown in new business wins, employment in the French services sector grew. Capacity pressures prevailed and backlogs of unfinished work continued to pile up.

For Germany, the PMI composite index was 57.6 in February, higher than the flash estimate of 57.4 but lower than January's 59.0. The services PMI activity index fell in line with the flash estimate to 55.3 in February from 57.3 in the prior month, with new orders' growth easing in February. The pace of employment growth in the German services sector cooled to a six-month low.

"The reduced the rate of job creation could hardly be linked to a lack of business confidence; on the contrary, services firms' future expectations were the highest seen in seven years," IHS Markit Principal Economist Phil Smith said of Germany. "The positive outlook among businesses is consistent with IHS Markit's forecast of annual GDP growth accelerating from 2.5% in 2017 to 2.8% in 2018."

Italy's seasonally adjusted business activity index for services fell to 55.0 in February from 57.7 in January.