LONDON: A similar survey found businesses in the United Kingdom reporting an unexpected increase

A sister survey found businesses in the United Kingdom reporting an unexpected increase in activity as well as easing price pressures, implying that Europe's economic outlook may be less bleak than expected.

S&P Global's flash Composite Purchasing Managers' Index (PMI) for the 20 eurozone countries, regarded as a good indicator of the bloc's overall economic health, rose to a nine-month high of 52.3 in February, up from 50.3.

That was comfortably above the 50-point threshold separating growth and contraction, and it was higher than all forecasts in a Reuters poll, which predicted a more modest rise to 50.6.

"The healthy PMI readings for February pose upside risks to our growth forecast, raising the odds that the eurozone will avoid contracting in Q1," Oxford Economics' Rory Fennessy said.

"However, we emphasize that growth will continue to underwhelm this year, weighed down by high inflation, tightening financial conditions, and weak global growth."

The German economy, Europe's largest, expanded for the first time in eight months in February, thanks to easing supply bottlenecks and improved underlying demand, according to the PMI.

The ZEW economic research institute reported on Tuesday that German investor sentiment continued to improve in February.

France's PMI painted a similar picture, indicating that activity increased this month for the first time since October, aided by a slight ease in inflationary pressures and job market strength.

The eurozone PMI showed demand increasing for the first time since mid-2022, implying the region's upswing could continue, while firms added headcount once more. The eurozone new business index increased from 48.9 to 50.6.

The bloc's dominant services industry grew at its fastest rate since June, with its PMI rising to 53.0 from 50.8, exceeding all estimates in a Reuters poll and far exceeding the median estimate of 51.0.

With recession fears fading, optimism for the coming year rose again in February. The business expectations index reached a nine-month high of 61.5 in February, up from 61.2 in January.

However, factory output fell at a slightly faster pace this month. The manufacturing PMI fell to 48.5 from 48.8, defying Reuters poll expectations for an increase to 49.3 and falling short of all forecasts.

However, an output index, which feeds into the composite PMI, rose to 50.4 from 48.9, its first time above 50 since May.

Input costs barely increased, and factory selling prices rose at the slowest rate in nearly two years. The output price index fell from 61.6 to 58.3.

"The improved supply picture, combined with the massive drop in gas prices in recent months, helps to explain the drop in the manufacturing input price index to its lowest level since September 2020," Capital Economics' Jack Allen-Reynolds said.

Signs of easing price pressures are likely to be welcomed by European Central Bank policymakers, who have aggressively raised borrowing costs in an attempt to keep inflation well above its target.

According to a Reuters poll conducted last week, the ECB will raise its deposit rate at least twice more, bringing it to a terminal rate of 3.25% next quarter.