The boost to exports from a weaker euro helped lift euro-zone manufacturing output last month, removing some of the gloom over the region's economic outlook, according to a closely watched survey yesterday.
The increase in the euro-zone manufacturing purchasing managers' index (PMI) for June - the first rise in five months - further damped speculation that the European Central Bank might soon have to cut interest rates to boost growth. Economists expect no change in rates at next week's meeting of the ECB's governing council, but said a cut in borrowing costs could be back on the agenda from September if the pick-up in activity expected by the ECB had not materialised.
Lorenzo Codogno, European economist at Bank of America, said the PMI data, and other forward-looking economic indicators, "seem to be projecting some kind of stability, which is good news".
Euro-zone money supply and credit figures have pointed to inflationary risks ahead, with higher oil costs adding to upward pressure on prices. That will have stiffened the resistance of the more "hawkish" ECB council members towards a rate cut.
The rise in the euro-zone PMI from 48.7 in May to 49.9 in June reflected an improvement in export orders, according to NTC Research, which publishes the figures. "New export orders increased at the fastest rate for four months, having contracted in May, due largely to the recent depreciation of the euro," it said. Germany saw the strongest growth in export orders. The euro yesterday fell to a 12 month low against the dollar.
The euro-zone PMI remained below the 50 level for the third month running, suggesting the health of manufacturing had continued to deteriorate, but at a slower rate.
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