Euro zone manufacturing activity contracted less than initially thought in June but there was a significant difference among countries that suggested any broad recovery would be slow, a survey showed today.
The data showed a slowing in the deterioration in the euro zone's manufacturing economy for the fourth month running as new orders shrank at a slower pace, indicating the bloc will contract by much less in the second quarter even if growth is a way off.
The Markit Eurozone Manufacturing Purchasing Managers Index for June rose to 42.6 from 40.7 in May, its highest since last September and above the 42.4 flash estimate. But that was still way below the 50 mark that divides growth from contraction.
Earlier data also showed a significant divergence between the pace of decline among euro zone countries, with France getting nearer stabilisation while key exporter Germany was still way off such levels.
“The euro zone PMI signalled a further easing in the rate of contraction in June, with output and new orders for some countries - notably France and the Netherlands - nearing stabilisation," said Chris Williamson, chief economist at data provider Markit.
The PMI rose last month on an improved outlook in the decline of new orders taken on. The new orders index rose to 44.9 from 42.2 in May, its highest level since June last year.
Yet the euro zone economy contracted by 2.5 percent in the first three months of the year, and is not expected to grow until the fourth quarter of this year at the earliest.
The orders to inventory ratio for each country, a key gauge of pressure on companies to raise production, also reflected the divergence between countries' fight-back towards recovery.
For the euro zone as a whole the ratio rose to its highest level in 22 months in June, but factories in countries such as Italy have not reduced old stocks as fast as other countries such as France.
“The national divergences heighten the risk of a protracted road to recovery for the euro zone as a whole," said Williamson. He added that any return to growth in Germany, Spain and Italy remained a long way off. But there were other more positive signs for the economy.
The export orders index rallied higher, reaching its highest since August last year and revised up from the flash level.
But while such leading indicators will encourage investors that the worst of a severe recession was seen in the first quarter, lagging indicators such as employment remained in deep contraction territory.
The employment index rose in June, but remained close to March's record low, showing factories are still shedding jobs at a rapid rate.
Official unemployment in the euro zone for May is forecast to hit 9.4 per cent when data is released tomorrow and will likely hit 10 per cent before long say many economists.