The euro zone's economic upturn is showing signs of broadening with the pace of recovery speeding up in Germany and Italy, surveys of manufacturing activity showed yesterday.
Manufacturing activity across the euro area accelerated at the fastest pace in 18 months in October while prices paid by companies leapt to the highest levels in the Reuters euro-zone Purchasing Managers' Index's (PMI) 29-month history.
Separately, national surveys of manufacturing in Germany and Italy, hardest hit by last year's emerging markets turmoil, are now expanding at long unseen rates.
The Italian PMI index leapt to the highest level since the survey began in June 1997, while in Germany, the euro zone's biggest economy, the index reached a 15-month high.
The October PMI survey marked a seventh consecutive euro-zone expansion but a dismal performance of two of its three biggest economies, Germany and Italy, earlier this year had cast some doubt over the strength of the recovery.
France, the single currency bloc's second largest economy, was still far ahead, powered by booming exports and buoyant business sentiment with its headline index jumping to 59.0 from 57.2 in September. A reading above 50 signals expansion.
The headline index for the 11-nation single currency bloc jumped to 57.1 from 54.7.
The surveys complemented the picture of a brisk recovery and mounting price pressures revealed from other sets of data and underline the argument favouring an interest rate rise by the European Central Bank, analysts said.
"If the ECB needed another reason to raise interest rates, this is it, and the surge in the [French] price index would suggest an argument for a raise of 50 basis points rather than 25," said Mr Patrick Mange, economist at Deutsche Bank in Paris.
About 80 per cent of economists polled by Reuters this week were convinced the ECB would raise interest rates tomorrow following a series of hints from the ECB President, Mr Wim Duisenberg, and other central bank officials that a rate rise was possible.
"[Mr Duisenberg] leaned out of the window so much with his comments that it seems a rate rise is now imminent," said Mr Frank Schroder of HSBC Trinkaus & Burkhardt.
Economists played down, however, the significance of strong rises in the PMI price indices, saying an interest rate rise would serve to bring the current generous monetary policy to a more neutral stance, rather than to stifle inflation.
The ECB cut its key short-term refinancing rate to 2.50 per cent on April amid signs of economic stagnation in the euro area's biggest economies.
Since July, the ECB has been signalling that risks to price stability were shifting to the upside, while all indicators were pointing to a strengthening recovery.
