The euro zone's private sector economy snapped a four-month decline in January and expanded, albeit very weakly, according to a business survey that hinted the euro zone may avoid recession.
Markit's Eurozone Composite Purchasing Managers Index (PMI) rose in January to 50.4 from 48.3 in December, unchanged from a preliminary reading and above the 50 mark that denotes growth for the first time since August.
The PMI measures changes in the business activities of thousands of services and manufacturing companies all over the euro zone, and has a good track record of predicting economic growth.
Survey compiler Markit said it may indicate the euro zone economy could yet avoid falling into a second quarter of contraction - the technical definition of a recession.
"It is encouraging to not only see signs that the German economy has sprung back into life, but also that the rate of decline in the periphery has started to ease quite substantially," said Chris Williamson, chief economist at Markit.
Despite the firmer outlook from the latest set of PMIs, Mr Williamson warned much still hinges on how the euro zone manages its sovereign debt crisis.
"Any setbacks in current negotiations could easily cause confidence to slump again," he said.
Greece has almost wrapped up a deal with its creditors to cut its debt mountain, but the government is now racing to complete talks for a €130 billion bailout with the International Monetary Fund by the end of this week.
Markit pointed to anecdotal evidence in the survey that business and consumer confidence are rebounding. The German ZEW index of analyst and investor sentiment posted a record rise in January, hinting that Europe's biggest economy may at least have reached a turning point.
However, today's PMI survey suggested private sector employment fell slightly for the first time since April 2010, as the jobs index fell a full point to 49.4 in January.
The PMI for the service sector, which comprises the bulk of the euro zone economy, also rose in January, to 50.4 from 48.8, revised down a tad from the preliminary reading of 50.5.
Like the composite survey, it too emerged in January from a four-month run of below-50 indexes.
"Inflows of new business fell, but at the weakest rate since last August. The rate of decline has now eased for three months to suggest that demand may be recovering," said Markit's Williamson.
The new orders component of the survey rose to 48.7 from 47.1 in December, its highest reading in five months but still below the 50 mark.
Reuters
