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Euro zone economic recovery gathers steam

Paris, France
Mitch Diamond | Photolibrary | Getty Images
Paris, France

The euro zone's economic recovery showed signs of gathering pace Monday as services and manufacturing activity in the region expanded in December, according to the latest data from analysis firm Markit.

Euro zone composite purchasing managers' index (PMI) data showed that activity in the sectors rose to 52.1 in December, up from 51.7 in the previous month. A reading above the 50-point mark indicates expansion.

Chris Williamson, chief economist at Markit, said the PMI surveys indicated that the euro zone recovery gained further traction at the end of last year.

"However, while the region as a whole looks set for a strengthening recovery in 2014, growth is uneven, with France in particular having possibly slid back into recession late last year."

Indeed, the individual numbers for the euro zone's larger economies continued to showed a diverging picture for Germany and France -- the euro zone's largest and second-largest economies respectively.

While German final composite PMI fell slightly in December, to 55.0 from 55.4 in November, the numbers remain firmly in expansion territory. The same cannot be said for France, however, whose negative trend accelerated in December with the final composite PMI falling to 47.3, from 48.0 in November.

The periphery also showed a diverging picture. While Italy's all-sector output fell to a two-month low, Spain continued on an upward trajectory, recording a 77-month high in all-sector output in December, Markit said.

The data follows manufacturing data from the 18-nation bloc last week in which factory activity posted its strongest growth since May 2011, in December.

(Read more: Euro zone manufacturing grows; France stumbles on)

Howard Archer, chief U.K. and European economist at IHS Global Insight, said he expected the data to reflect well upon the euro zone's economic growth. "We expect euro zone gross domestic product (GDP) growth to have improved modestly to 0.2 percent-0.3 percent quarter-on-quarter in the fourth quarter of 2013."

The data comes ahead of the latest interest rate decision by the European Central Bank (ECB) expected to be announced on Thursday.

Toward the end of 2013, there were fears that the euro zone region could see inflation continuing to fall, raising the specter of Japan-style deflation. However, ECB President Mario Draghi said in November that although the euro crisis was by no means over, he saw no signs of deflation or urgent need to cut rates further, a decision that appeared appropriate after better-than-expected inflation data from the euro zone in November.

Michael Hewson, chief market analyst at CMC Markets, agreed that the ECB was unlikely to change policy on Thursday unless the latest inflation numbers due from Germany on Monday were a cause for concern.

"Given this week's ECB rate meeting, today's German consumer price index (CPI) numbers are expected to be closely watched for any sign of significant weakness, which seems unlikely given how robust some of the most recent economic data has been," said in a note on Monday.

"Unless there is a significant miss on these numbers no changes are expected on Thursday, given Draghi's comments at the end of last year."

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