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Euro zone business activity surges by its fastest rate in 15 years – CNBC

An apprentice in the profession welder is working in a training center in Siegburg, Germany.

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LONDON — Euro zone business activity has grown at its fastest pace in 15 years this month, according to preliminary data released Wednesday.

The 19 economies have recently taken different steps to reopen their economies as the vaccination programs continue to accelerate. France has, for instance, lifted a night curfew and the need to wear a face mask outdoors. Italians are now able to have their coffee standing at a counter, as is their tradition, after indoor dining resumed. In addition, more tourists are now being welcomed into the region.

IHS Markit’s flash composite PMI for the euro zone, which looks at activity across both manufacturing and services, hit 59.2 in June versus 57.1 in May. A reading above 50 represents an expansion in economic activity.

This was the highest reading in 180 months, or 15 years, according to IHS Markit.

“Very encouraging signs of the recovery gaining momentum,” Chris Williamson, chief business economist at IHS Markit, told CNBC’s “Street Signs Europe” on Wednesday.

“The fastest growth we have had in business activity for 15 years, demand as measured by new orders also growing at the fastest rate in 15 years propelling that, and jobs growth accelerating nicely as well, so it’s an all-round recovery that’s gaining breath as well,” he added.

The European Central Bank estimated earlier this month that the euro zone would grow at a rate of 4.6% this year and 4.7% next year — a stronger outlook from its March assessment.

However, economic uncertainty remains, notably due to the delta coronavirus variant which is leading to higher infections, and also labor market shortages — even in nations with a relatively high unemployment rate.

“What we have seen so far is certainly the hospitality sector, hotels, restaurants, which seem to be the hardest hit. A big pressure there on trying to get enough staffing quickly to meet what is a surge in demand and this is only going to get worse as we see a further reopening of these economies in July,” Williamson said.

French firms experience back-to-back expansions

The flash France composite output index came in at 57.1 in June, from 57.0 in May, representing an 11-month high. The latest lifting of Covid-19 restrictions contributed to a higher number of sales. Also, new orders placed with manufacturers experienced one of the fastest increases since the pandemic hit in 2020.

Joe Hayes, senior economist at IHS Markit said: “The French economy has enjoyed its best quarterly performance since early 2018.”

“With vaccination rates on the rise, survey data suggest that firms are becoming more confident that the stage is set for an economic recovery,” he said, while adding that “the recovery could run into some speed bumps if the supply-side is what is ultimately holding the economy back.”

Meanwhile, the flash Germany PMI composite output index reached 60.4 in June from 56.2 in May — hitting a 123-month high.

“The further loosening of Covid-19 restrictions has given an additional boost to the recovery of the German economy, with the ‘flash’ PMI rising steeply to its highest for over a decade. And with containment measures set to be lifted further in July, this strong momentum is on course to carry over to the third quarter,” Phil Smith, associate director at IHS Markit, said in a statement.