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Eurozone Recovery Gathers Steam On Strong Activity In Germany

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Eurozone's private sector growth accelerated more-than-expected in January, led by a further strong expansion in Germany, with both the manufacturing and service sectors recording above-trend improvement in business activity.

Data published by Markit Economics on Thursday showed that the activity indicator for the euro area private sector climbed to 53.2 from 52.1 in December, and stayed above the no-change 50 mark for the seventh successive month.

This month's score signaled the sharpest improvement in operating conditions since June 2011. Economists had expected the index to rise to 52.5.

The pick up in overall activity was driven by a marked improvement in the manufacturing sector, where the purchasing managers' index (PMI) jumped to a 32-month high of 53.9 from 52.7 in December. Expectations were for a score of 53.

At the same time, the PMI for the service sector rose to a four-month high of 51.9 in January from 51 in December. Economists were looking for a reading of 51.4.

New orders placed with Eurozone firms increased for the sixth successive month in January, and at a rate that was unchanged from December. Meanwhile, employment decreased moderately after having stabilized in December, as companies remained uncertain about their capacity to expand.

Input price inflation faced by euro area firms picked up in January, but stayed slightly below November's peak. However, selling prices continued to fall, extending the current sequence of declines to two-and-a-half years.

Germany continued to lead the euro area recovery. The activity indicator for the German private sector moved up to 55.9 in January from 55 in December, marking the fastest improvement in operating conditions in over two-and-a-half years. Both, the manufacturing sector and the service sector posted strong growth.

French private sector business activity declined at a slower pace in January, with the composite output index rising to 48.5 in January from 47.3 in December. The rest of the region also saw a strengthening upturn, the survey showed.

According to Chris Williamson of Markit, the upturn in the PMI puts the region on course for a 0.4-0.5 percent GDP expansion in the first quarter as a 0.6-0.7 percent expansion in Germany helps offset a flat-looking picture in France.

"We are seeing growth being led by Germany, especially its surging manufacturing sector, while France looks likely to act as a drag on the eurozone recovery for some time," Williamson added.

Government data that came out earlier this month showed industrial production in the currency bloc recovering more-than-expected in November. The pace of growth was the fastest in more than three years.

In the third quarter, Eurozone's economic growth eased to 0.1 percent from 0.3 percent in the three months to June, when the economy exited its longest ever recession. Recent data points to sluggish recovery amid deflationary risks and high unemployment.

At this month's meeting, the European Central Bank kept its key interest rate unchanged at a record low of 0.25 percent, as it battles deflationary tendencies.

In an interview yesterday, ECB President Mario Draghi cautioned against over optimism regarding the euro area recovery, which he said remained weak and uneven. While there are encouraging signals and visible first signs of Eurozone recovery, the risks of setbacks are great, he warned.

The International Monetary Fund slightly raised the growth forecast for Eurozone this week, saying the region is turning the corner from recession to recovery. Growth is projected to strengthen to 1 percent in 2014 and 1.4 percent in 2015, though the recovery is seen to be uneven.

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