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 In Britain, outside the currency union and where markets are instead
focusing on when monetary policy will be tightened, a sister survey
showed activity in the dominant service industry expanded faster
than anyone polled by Reuters had expected.
"It's all good news. We knew QE (quantitative easing) was coming and
it was factored in. So it's not unreasonable to say 'Crikey, that QE
works quick'." said Alan Clarke, an economist at Scotiabank.
"In Britain, it suggests lower oil prices are starting to boost
business confidence and that there is probably more good news
ahead."
Wednesday's euro zone survey, combining manufacturing and services,
was carried out mostly before the ECB announced a near
one-trillion-euro quantitative easing program of bond purchases to
revive inflation and boost the economy,
Data compiler Markit said it pointed to first-quarter economic
growth of 0.3 percent in the bloc.
That matches the median forecast in a Reuters poll last month and,
if realized, would beat the 0.1 percent economists have penciled in
for the last three months of 2014.
Markit's final January Composite Purchasing Managers' Index (PMI)
stood at 52.6, higher than a preliminary estimate of 52.2 and
December's 51.4.
However, growth came at a cost to margins. An index measuring output
prices fell to 46.9 from December's 48.1, its lowest reading since
February 2010, suggesting firms were slashing prices to drum up
trade.
Annual consumer prices dropped a record-equalling 0.6 percent last
month as commodity prices, Brent crude in particular, tumbled.
Likely encouraged by falling prices, retail sales in the bloc were
the highest in almost eight years in December as Christmas shoppers
splashed out.
Price-cutting also helped drive service industry activity up at the
fastest rate in five months. The services sector PMI rose to 52.7
from December's 51.6, ahead of the flash 52.3 estimate.
Confidence about the ECB's QE program and signs of growth in new
orders accelerating helped lift a gauge of optimism among service
firms by the biggest one-month margin in over five years.
Echoing the ECB's loosening, central banks from Switzerland to
Turkey to Canada and Australia have cut interest rates in the past
few weeks.
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But Iceland's central bank kept rates unchanged on Wednesday,
indicating the direction of its next policy move was uncertain as it
raised its economic growth forecast for 2015 and predicted low
inflation into next year.
GERMANY HOPEFUL, FRANCE LAGS
Britain has likewise been grappling with falling inflation, which at
0.5 percent is far below the Bank of England's 2 percent goal, but
unlike the euro zone its economy has enjoyed relatively healthy
growth.
Recent Reuters polls have seen rate hike expectations move steadily
further out and muddying the waters more for economists trying to
predict when the Bank would act, Britain's PMI came in at 57.2,
higher than any forecast polled by Reuters.
That suggests the British economy as a whole is growing at a rate
slightly above the 0.5 percent it managed in the final three months
of 2014, Markit said.
"Rate setters will welcome any good news with open arms. But with
inflationary pressures very weak at present they face something of a
communication difficulty," said Rob Wood, chief UK economist at
Berenberg Bank.
"The BoE will want to sound dovish in next week's Inflation Report
press conference."
Germany's private sector expanded faster in January than at the end
of last year as companies received new orders and took on staff,
implying Europe's largest economy may be picking up.
Spain's economic recovery gathered momentum while Italy's service
sector returned to growth. But it was a different story in France,
the bloc's second biggest economy, whose dominant service industry
sank back into the red.
(Editing by Ross Finley and John Stonestreet)
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