Euro zone manufacturing growth increases


The euro zone manufacturing sector grew at its fastest pace in two years in January but the divergence between laggard Spain and the rest of the big four economies widened, a survey showed today.

Data released earlier showed activity in Germany, France and Italy continued to expand but it was a different story in Spain, where activity declined for the 26th consecutive month and in Greece and Ireland which saw activity shrink at a faster rate.

"The recovery is becoming two-track, with Spain and Greece in particular falling further into recession when growth in most of the other nations, led by France and Germany, is accelerating," said Rob Dobson at data provider Markit.

The Markit Eurozone Manufacturing Purchasing Managers' Index for January rose to 52.4 from 51.6 in December, nudging up from the flash estimate of 52.0 released late last month.

This is the fourth month running the index has been above the 50.0 mark that divides growth from contraction and is its highest reading since January 2008. The factory output index also rose, to 56.0, a 29-month high, from December's 55.1.

Markets were little moved on the data.

Greek manufacturing shrank at a faster pace in January as the crisis hit nation showed no sign of exiting its first recession in 16 years and adding to worries over its ability to curb its debts and budget deficit.

In January last year the euro zone index was at 34.4, just up from December 2008's 11-year survey low. European Central Bank president Jean-Claude Trichet said on Friday it had been under-estimated how close the economy had been to a full-fledged depression.

The euro zone economy escaped from its worst post-war recession when it returned to growth of 0.4 per cent in the July-September period last year, having shrunk for five consecutive quarters, and economists expect growth of 0.4 per cent in the fourth quarter.

The new export orders index rose to 53.8, a 29-month high, from December's 53.2, benefitting from a pick-up in major economies and a depreciating euro.

The euro has been hovering around six-month lows against the dollar as investors remain wary on concerns over heavily indebted smaller euro zone countries such as Greece and Portugal.

"Helping matters for euro zone manufacturers will be the marked retreat in the euro from a 15-month high," said Howard Archer at IHS Global Insight.

Job losses continued to mount in the sector, with the unemployment index coming in well below 50 for the 20th month, as firms continue to cut jobs to increase profitability.

Prices fell for the 15th month as firms used discounting to drum up business. Official numbers released on Friday showed consumer prices rose 1.0 per cent year-on-year in January.