Euro zone economy on course to stabilise

Data unlikely to sway ECB into changing policy at upcoming meeting

Wed, Jul 3, 2013, 10:21

The euro zone economy looks on course to stabilise in the second half of this year, even if a return to outright growth is still a while off, business surveys suggested today.

Markit’s final Composite Eurozone Purchasing Managers’ Index (PMI), a monthly survey of thousands of companies, rose to its highest since March 2012 last month, climbing to 48.7 from May’s 47.7, although it was revised down slightly from a preliminary reading of 48.9.

The index edged closer to the 50 point line dividing growth from contraction for the third month in a row, although it still suggested the euro zone’s recession extended through the second quarter.

Survey compiler Markit said the data were consistent with the economy shrinking 0.2 per cent in the three months from April to June, as it did in the first quarter of the year. Although still suggesting a weak economy, the data are unlikely to sway European Central Bank policymakers into changing their monetary policy stance at their monthly meeting.

“Most encouraging is the news that the Spanish economy is now contracting at the slowest rate for two years while Italy, although still plagued by a weak services economy, is seeing business activity fall at the slowest pace since September 2011,” said Chris Williamson, chief economist at Markit. “The concern is that, with Germany barely growing, it remains difficult to identify any real growth drivers.”

He added that any economic expansion was likely to remain subdued until business confidence improves further and unemployment falls from its record euro-era high of 12.2 percent. Although the survey’s jobs index ticked up to 47.4 last month from May’s 47.2, that still suggests the jobless rate is likely to head higher.

The services PMI, which covers companies ranging from banks to restaurants, also rose in June and suggested companies are becoming a little more optimistic about the outlook. It rose to 48.3 in June from 47.2 in May, trimmed slightly from the preliminary reading of 48.6.

The new business index jumped more than a full point in June, showing services companies are losing business at a far slower pace than they were even a month ago. That is consistent with ECB president Mario Draghi’s claim that he expected the euro zone economy to start recovering in the second half of the year.

A survey published earlier today showed France’s prospects of emerging from recession brightened in June as the private sector shrank at its slowest pace in 10 months and the rate of job losses eased to its weakest in a year.

French PMIs fared better in June than at any time since August 2012, while still contracting.

The composite PMI index of activity in both sectors combined rose to 47.4, the highest in 10 months, jumping from May’s 44.6.

In the services sector, which alone generates more than half of French economic activity, the PMI index came in at 47.2, also the highest reading in 10 months, up from 44.3 in May.

Reuters

Reuters