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Euro-Zone Private Sector Fared Better Than Estimated Last Month

(S&P Global)

(Bloomberg) -- Euro-area business activity held up better than initially reported in October as growth in the services sector kept the region from contracting for a second month in a row.

The composite Purchasing Managers’ Index by S&P Global ticked up to 50 from 49.6 in September, hitting the level that separates growth from contraction. A flash reading on Oct. 24 had shown a smaller increase and a reading below the key threshold.

“The modest expansion of the services sector has been crucial in keeping the currency union out of recession,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank. “We are confident that service providers will continue to increase their activity, as lower inflation and higher wages mean higher private consumption.”

The revised data arrive after third-quarter growth figures came in stronger than expected, with even Germany dodging the recession it was widely tipped to have endured. Business activity in the country still shrank in October, as it did in France, while Italy and Spain saw expansion.

Inflation accelerated more than anticipated last month as price growth in the services sector - which held at 3.9% — remains a particular concern. According to S&P Global, input costs and output charges in that part of the economy increased at a faster pace in October.

“In our view, this stickiness is a structural problem related to the demographically induced labor shortage, which is exerting upward pressure on wages,” de la Rubia said. “The ECB will find it difficult, if not impossible, to achieve the 2% inflation target in a sustainable manner in this environment.”

Investors have recently pared bets that the ECB will resort to an outsized interest-rate cut in December to boost the economy. They still expect continued easing into next year.

--With assistance from Mark Schroers and Joel Rinneby.

©2024 Bloomberg L.P.