The euro zone's services and manufacturing sectors posted their best performance in six months in April, key surveys showed today, suggesting the severity of the recession may have eased.
Markit's Eurozone Flash Services Purchasing Managers' Index (PMI) rose to 43.1 from 40.9 in March, well above consensus expectations of 41.0.
It was the highest since October, but still far below the 50 mark dividing growth from contraction.
The rise in the index followed a more than 20 per cent rally in stock markets, which bolstered fragile confidence across the euro zone and brightened the outlook for companies still reporting falling business orders and output.
The reports suggest the bloc's recession has tempered at the start of the second quarter, even though job cutting is accelerating and there is little sign of a return to growth before late this year. Financial markets shrugged off the data.
"There is a sense that the cycle is bottoming out and bottoming out more quickly than expected," said Mark Wall at Deutsche Bank, adding that the index was still consistent with a hefty degree of economic contraction.
"If we continue to rise at this level it would still take another five months to get back to a position of zero growth."
Both France and Germany saw significant easing in the rate of decline in activity across their manufacturing and services sectors. Germany's PMI rose to its highest level since November last year, while France's jumped to a six-month high.
The Flash Manufacturing PMI for the euro zone also jumped to 36.7, a six-month high, from 33.9 in March, well above the consensus for 34.5. That also took the Composite index to a six-month high of 40.5 from 38.3 the previous month.
The PMI surveys showed increasing numbers of companies, albeit still a minority, saying they were beginning to see an upturn in demand.
Markit said the figures, if sustained, point to a quarterly rate of economic contraction of at least 0.5 per cent and any halt to the shrinkage would not likely be seen until the end of the year.
That is better than the 1.6 per cent contraction in the fourth quarter of 2008, the latest official figures available. The latest Reuters consensus is for that rate of contraction to have been matched in the quarter just ended in March.
But the data are likely still weak enough to support the case for another small interest rate cut in May from the European Central Bank to 1 per cent.
Hope for improving business in the year ahead leapt on the back of stock market gains as well as some improvement in demand, while inflationary pressures remained close to record lows.
The services business expectations index jumped above the 50 mark to 53.6 from 48.6, hitting its highest level since June last year, before the financial crisis intensified with the collapse of Lehman Brothers.
Factory sentiment also improved. The new orders index jumped to 37.4 from 30.9, its highest level since September last year and largest rise in the survey's history.
Reuters