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Euro Region Economy Strengthens Amid Wrangling Over Greece

(Bloomberg) — Euro-area manufacturing and services strengthened this month, indicating the region’s economy is building momentum even as concerns mount about a possible Greek exit from the common currency.

A composite Purchasing Managers Index for both sectors rose to 53.5 from 52.6 in January, London-based Markit Economics said on Friday. That exceeded the median forecast of economists for a reading of 53 and is the highest in seven months.

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The 19-country economy grew 0.3 percent in the final three months of 2014, and Markit estimates it will grow at a similar pace this quarter. Germany is leading the region’s recovery as a weakening currency lifts exports, while European Central Bank stimulus is bolstering confidence about the outlook.

“Undeterred by the ongoing Greek debt crisis, economic growth is gathering momentum and looks set to gain further traction in coming months,” said Chris Williamson, chief economist at Markit in London. “With the ECB’s quantitative easing ‘bazooka’ due to start in March, business optimism has been boosted to its highest for three-and-a-half years.”

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Markit’s manufacturing gauge for the region rose to 51.1 in February from 51 in January, less than economists had forecast. The services measure jumped to 53.9 from 52.7, beating estimates. A reading above 50 indicates expansion.

The euro was trading at $ 1.1312 as of 9:08 a.m. London time, down 0.5 percent on the day after the data were released.

Job Creation

“Growth is looking lop-sided,” Williamson said. It’s “very much dependent on the services economy where lower prices are fueling growth, especially in consumer-facing sectors. The weakness of the manufacturing economy remains a major concern.”

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In a sign of rising optimism, hiring picked up and the rate of job creation was the strongest since 2011, according to Markit. German investor confidence rose to the highest in a year this month, buoyed by the imminent arrival of fresh stimulus, the ZEW Center for European Economic Research said on Tuesday.

European Central Bank President Mario Draghi has announced plans to buy 1.1 trillion euros ($ 1.3 trillion) of bond purchases to stave off deflation. Consumer prices in the currency bloc fell an annual 0.6 percent in January, far from the ECB’s goal of just below 2 percent. Markit said average selling prices in the euro area have been falling continuously for three years, though they declined at a slower pace this month.

The effect from the ECB bond-buying program, due to start next month, and lower energy costs, may help stimulate the euro area’s economy.

Greece Turmoil

Nevertheless, potential financial-market turmoil related to Greece remains a threat to the recovery. Euro-area finance ministers hold emergency talks with Greek officials Friday amid increasing pressure to find a compromise on maintaining funding to the indebted country to prevent tensions from harming confidence and growth.

Markit said its composite PMI for Germany increased to 54.3 in February from 53.5 in January. The gauge is now at its highest in seven months. France’s measure rose to 52.2 from 49.3, the highest since August 2011.

To contact the reporter on this story: Tom Beardsworth in London at [email protected]

To contact the editors responsible for this story: Fergal O’Brien at [email protected] Jennifer Ryan, Zoe Schneeweiss

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