Euro zone private sector growth beats forecasts in July

Growth led by Germany as it benefited from growing demand for its exports

Growth returned to the region’s dominant service sector this month. Photographer: Chris Ratcliffe/Bloomberg

Growth returned to the region’s dominant service sector this month. Photographer: Chris Ratcliffe/Bloomberg

Thu, Aug 22, 2013, 09:26

Business activity across the euro zone has picked up this month at a faster pace than expected, surveys showed today, led by Germany as it benefited from growing demand for its exports.

Survey compiler Markit’s Flash Composite Purchasing Managers’ Index (PMI) bounced to 51.7 from last month’s 50.5.

It was the highest reading since June 2011 and beat all predictions in a Reuters poll whose median forecast was for 50.9. Readings above 50 signify expansion in activity.

While growth accelerated in the euro zone’s biggest economy, it was a different story in France, the region’s second largest economy, which saw business fall as its economy went into a summer lull.

But Markit said the composite PMI, which surveys thousands of companies across the region and is used as an indicator of growth, pointed to a 0.2-0.3 per cent economic expansion in the current quarter.

That is similar to a Reuters poll taken earlier this month that predicted growth of 0.2 per cent this quarter.

“It’s looking good. If the euro zone is picking up then that bodes well for the global economy. The wobble in France is a bit of a worry, but hopefully that will be corrected,” said Chris Williamson, Markit’s chief economist.

Growth returned to the region’s dominant service sector - the services PMI rose above the 50 mark for the first time since the start of last year, coming in at 51.0 after 49.8 in July.

Similarly, growth quickened among manufacturers, whose PMI rose to a 26-month high of 51.3 from 50.3.

Both PMIs beat the median expectation in a Reuters poll and the services index came in above the most optimistic forecast. The manufacturing output index, which feeds into the composite PMI, bounced to a 27-month high of 53.4 from 52.3.

An earlier flash composite PMI from Germany showed the growth rate was the fastest in seven months but in France activity declined across the board.

Support from Germany and France, the 17-nation region’s two biggest economies, helped it escape from its longest recession on record last quarter, expanding a better-than-expected but still modest 0.3 per cent.

The problem faced by the European Central Bank in trying to stimulate growth - as it has been for some years - is still the heavily indebted south. But Mr Williamson said manufacturing and services activity was improving in the periphery.

New business in the region increased for the first time in just over two years, and the composite subindex rose to 50.5 from 49.7, supported by orders coming in for manufactured goods from abroad at their fastest rate since May 2011.

Despite the upturn, expectations among services firms dipped from July’s 16-month high and manufacturers reduced their workforce at a faster pace than last month.

“The job shedding in part reflects the need to keep costs down and remain competitive, but there is still some uncertainty about the outlook,” Mr Williamson said. (Reuters)

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