Forward-looking Euro area activity rises strongly signaling solid growth

Eurozone services sector continued robust growth rate in October confirming broad-based growth at the beginning of Q4. Final services sector PMI from HIS/Markit rose to 55.0 in October, up from the flash estimate of 54.9. Services sector expansion above 50.0 division line continues in the Eurozone for the  51-months in a row. The growth rate in October eased a bit from September’s highs, but still remains among the best registered in the time series.

Growth in output was seen in all the five nations covered in October. Ireland recorded the most rapid pace of growth, although the weakest since November 2016. France was second in position with the pace of growth rising to a seven-month high. The growth rate in Germany, Spain, and Italy decelerated in October.

Employment rises
The outlook for the second group of counties remained positive. Looking at the structure of sub-indices within PMI report, the growth rate of new orders stabilized, with the business sentiment about the output level in one-year horizon remained above its long-run trend level. 

The combination of stable new orders and above trend output enabled companies to hire additional personnel, with employment increasing to one of the greatest degrees in more than nine years. 

According to PMI employment sub-indices, job creation rose in Germany, Spain, and France, but decelerated in Ireland and Italy. Positive employment development was also documented by the official statistical report on unemployment that dropped to 8.9%, the lowest level since January 2009.

Inflation picks up
Looking at the sub-indices of price development, inflation pressures continued to build at the beginning of the fourth quarter. Average costs increased at the steepest rate since March, indicating solid and accelerated rises in Germany, Spain Ireland, and Italy. Italy also recorded a strong pace of input price inflation, albeit slower than in the prior survey month.

Average charges of output prices also rose in October, with the pace of inflation rising up to a seven-month high. Output prices rose in France and Germany with Spain and Ireland repowering slightly lower growth rate of prices. Italy was the only country to report flat output prices.

Solid growth ahead
According to Chris Williamson, Chief Business Economist at HIS/Markit releasing the services PMI reports October headline PMI reading match the average seen Q3 this year and puts the region on course for another 0.6%-0.7% expansion Q4.