LONDON (Reuters) – Economic activity in the euro zone showed signs of recovery last month, with the currency bloc’s dominant services sector growing for the first time since July, offsetting a sharp contraction in manufacturing sector, according to the definitive HCOB/S&P Global purchasing managers survey released Tuesday

The composite PMI, which includes services and the manufacturing sector, recovered to 49.2 in February from 47.9 in January. In a first estimate, it stood at 48.9 for the month of February while the threshold of 50 separates growth and contraction in activity.

The composite PMI is at its highest level since June.

The services PMI index, meanwhile, rose from 48.4 to 50.2.

“The services sector could have a better start than expected in 2024. Even if the growth rate is limited, it is accompanied by positive developments in other PMI sub-indicators,” said Cyrus de la Rubia, head economist at Hamburg Commercial Bank.

The index covering new orders is on track to reach equilibrium, with optimism for 2024 at its highest in more than a year and companies having hired more workers. The services employment PMI rose to an eight-month high at 52.7 from 51.2.

“While employment is traditionally considered a lagging indicator, this trend points to a growing sense of optimism and portends continued recovery in the sector,” added Cyrus de la Rubia.

However, signs of inflationary pressures have increased with the rise in composite input and output price indices. The producer price index stood at 54.4, its highest level in nine months, compared to 54.2 in January.

The European Central Bank (ECB), which meets on Thursday, is expected to keep its key rates unchanged but while they are at record levels, the institution is keen to fight inflation. The markets are counting on June for a first rate cut.

(Written by Jonathan Cable; Claude Chendjou, edited by Blandine Hénault)

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