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Eurozone Private Sector Expansion Strongest In 3 Months

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Eurozone's private sector expanded at the fastest pace in three months in February, led by stronger growth in services, while manufacturing contracted, preliminary survey data from IHS Markit showed on Thursday.

The flash Composite Purchasing Managers' Index rose to 51.4 from 51 in January. Economists had forecast a score of 51.1.

A PMI reading above 50 suggests growth in the sector.

The flash Services PMI climbed to a three-month high of 52.3 from 51.2 in January.

In contrast, the manufacturing sector shrunk in February with the PMI falling to a 68-month low of 49.2 from 50.5 in the previous month.

The flash manufacturing PMI Output index also dropped to a 69-month low of 49.2 from 50.5 in January.

"The survey data suggest that GDP may struggle to rise by much more than 0.1 percent in the first quarter," IHS Markit Chief Business Economist Chris Williamson said

An improving picture in Germany and stabilization in France underpinned the services growth in February, while factory output declined for the first time since June 2013.

Overall new orders decreased for the second straight month, led by a weaker manufacturing. Factory new orders declined the most in almost six years and export orders fell at a faster pace than in January. The services sector saw a modest increase in demand.

"With factory order books deteriorating at an increased rate, the rate of contraction in the goods producing sector will likely worsen in coming months," Williamson said.

Despite the weakness in output and new orders, employment grew at a faster rate. Job creation quickened in the service sector and was unchanged in manufacturing.

Businesses' confidence regarding the 12-month outlook hit a four-month high, not fazed by a fall in the manufacturing sector.

Input cost inflation eased for the fourth month in a row to its weakest level in a year-and-a-half. Output prices grew at the slowest pace in 18 months. Both sectors reported softer inflationary pressures.

Among member states, trends in Germany clearly depicted the divergence in performance between the manufacturing and service sectors in February.

The German composite PMI climbed to a four-month high of 52.7 from 52.1 in January. Economists had expected the reading to ease slightly to 52.

The Services measure rose sharply to 55.1, its highest in five months, from 53 in January. Economists were looking for a lower reading of 52.9. The improvement was largely driven by a pick-up in new business growth.

In contrast, the German manufacturing sector slid into contraction as output fell for the first time since April 2013 and at the quickest pace in over six years. The factory PMI dropped to a 74-month low of 47.6 from 49.7 in January.

German manufacturing order books revealed the worst decline in six-and-a-half years amid a further sharp drop in exports. The decline in demand was largely due to continued troubles in the auto sector as well as a fall in demand from Asia, especially China and growing competitive pressures within Europe.

In France, there were signs of stabilization despite the lingering disruption caused by the "yellow vest" protests.

The French composite PMI rose to a three-month high of 49.9 in February from 48.2 in January. That was better than the 48.8 score economists had predicted.

The flash services PMI climbed to 49.8, the highest in three months, from 47.8 in January. The reading was higher than the 48.5 economists had expected.

The French manufacturing PMI rose to a five-month high of 51.4 in February from 51.2 in January. That defied economists' expectations for a fall to 51.

In rest of the euro area, private sector output growth was modest and the pace of expansion slowed for a second consecutive month to the weakest since November 2013. Both manufacturing and services witnessed weaker rates of expansion.

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