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Euro Zone Economy Shows Further Signs of Growth Rise in Activity Gives Euro Zone Another Glimmer of Hope
(about 9 hours later)
PARIS — Euro zone economic activity this month reached its highest level in more than two years as manufacturing output grew, according to a private sector study made public on Thursday, providing confirmation that a slow expansion is under way in the currency bloc. PARIS — Economic activity in the euro zone this month reached its highest level in more than two years as manufacturing grew, new survey data indicated Thursday, providing another glimmer that a slow expansion might finally be under way in the currency bloc.
A survey of purchasing managers conducted this month by Markit Economics, a data and analysis firm in London, pointed to a broad, though tentative, recovery in the 17 nations of the euro zone. Markit’s composite output index rose in August to 51.7 from 50.5 in July, the highest in 26 months and above market expectations for a reading of about 50.9. A number over 50.0 indicates growth. A survey of corporate purchasing managers conducted by Markit Economics, a data and analysis firm in London, pointed to a broad — if tentative — recovery in the 17 nations of the euro zone.
The data comes just a week after official data showed Europe breaking out of recession in the second quarter of the year, helped by a rebound in French and German household spending. Markit’s composite output index — which tracks sales, employment, inventory and prices — rose in August to 51.7 from 50.5 in July. That was the highest figure in 26 months. A number over 50 indicates growth.
Markít’s index of manufacturing sector purchasing managers rose to a 26-month high of 51.3, up from 50.3 in July. A comparable survey in the services sector showed a rise in activity to 51.0, up from 49.8 in July, the highest in 24 months. Although not all the news was good — the survey indicated a contraction in French output during the month — the results were the second recent set of hopeful signals. Last week, official data showed that Europe broke out of recession in the second quarter of the year, helped by a rebound in French and German household spending.
The data “provide further evidence that the currency union continued to expand in the third quarter, albeit at a pretty modest pace,” Jonathan Loynes, an economist in London with Capital Economics, wrote in a research note. “On past form, the index is now consistent with quarterly growth in euro zone G.D.P. of about 0.2 percent,” equivalent to an annualized rate of about 0.8 percent. The data “provide further evidence that the currency union continued to expand in the third quarter, albeit at a pretty modest pace,” Jonathan Loynes, an economist in London with Capital Economics, wrote in a research note. “On past form, the index is now consistent with quarterly growth in euro zone G.D.P. of about 0.2 percent,” equivalent to an annualized gross domestic product rate of about 0.8 percent.
The world economy could well use a European economic renaissance at a time when global markets have been unnerved by signs of a slowdown in emerging markets and anxiety about the timing and impact of the American Federal Reserve’s monetary stimulus policies. The world economy could well use a European economic renaissance at a time when markets have been unnerved by signs of a slowdown in emerging markets and anxiety about the timing and impact of the U.S. Federal Reserve’s monetary stimulus policies.
Still, there is little sign that the tepid recovery will be enough to address the main problems weighing on the euro zone, an unemployment rate at record levels and a crisis of confidence in public sector finances. Still, there is little sign that the tepid recovery will be enough to address the main problems weighing on the euro zone: an unemployment rate at record levels and a crisis of confidence in public-sector finances.
Once again, the largest European economy, Germany, led the way, with output expanding at its fastest pace since January, with manufacturing at a 25-month high, according to data from Markit. Once again, Germany, with the largest European economy, led the way, with output expanding at its fastest pace since January and with manufacturing at a 25-month high, according to data from Markit.
Carsten Brzeski, an economist in Brussels with ING Bank, said Germany was benefiting from a combination of strong domestic demand and improvements across the European economy.Carsten Brzeski, an economist in Brussels with ING Bank, said Germany was benefiting from a combination of strong domestic demand and improvements across the European economy.
“It looks as if new growth hopes for the rest of the euro zone are stimulating German confidence,” he wrote in a note to clients, “which in turn could lead to higher German economic growth and could eventually become growth-supportive for the euro zone.”“It looks as if new growth hopes for the rest of the euro zone are stimulating German confidence,” he wrote in a note to clients, “which in turn could lead to higher German economic growth and could eventually become growth-supportive for the euro zone.”
French purchasing managers reported a contraction, with the index coming in at 47.9 in August compared with 49.1 in July. That suggests that France’s second-quarter growth spurt of 0.5 percent, or about 2.0 percent at an annualized rate, might prove a one-off affair. Karl-Heinz Streibich, the chief executive of Software AG, based in Darmstadt, said Germany had benefited from its diverse pool of thousands of midsize manufacturers. “We are not totally dependent on the wellbeing of 10 or 15 companies,” he said by telephone.
Jack Kennedy, a Markit economist, said that although the French index had been disappointing, there were “encouraging signs from some of the more forward-looking indicators,” including the first small increase in new manufacturing orders in more than two years. Software AG, which on Thursday announced the latest in a series of acquisitions, has even been hiring people at its offices in Spain and Italy, albeit in small numbers, Mr. Streibich said. But the company, which had revenue last year of about 1 billion euros, or $1.3 billion, is building sales in those countries at the expense of rivals — not because the overall market is growing, he said.
“We don’t ride a growth wave of G.D.P.,” he said. “It is about taking market share from the competition.”
French purchasing managers’ data pointed to a contraction, with the index coming in at 47.9 in August after 49.1 in July. That suggests that France’s second-quarter growth spurt of 0.5 percent, or about 2.0 percent at an annualized rate, might prove a one-time affair.
Jack Kennedy, an economist at Markit, said that although the French index had been disappointing, there were “encouraging signs from some of the more forward-looking indicators” elsewhere, including the first small increase in new manufacturing orders in more than two years.
“There’s increasing confidence in most European countries,” said Feike Sijbesma, chief executive and chairman of Royal DSM, a Dutch specialty chemicals company. “That’s good because it could help increase demand.”
DSM reported on Aug. 6 that sales rose 9 percent in the second quarter from a year earlier, to 2.5 billion euros, as profit before interest, taxes, depreciation and amortization rose 19 percent to 345 million euros. Results improved as the company sold more heat-resistant plastics to the auto industry, while its nutrition business increased sales of oils to the food industry.
Mr. Sijbesma believes, however, that DSM’s performance was more reflective of its innovations, some of which helped its customers to save money, than of any rebound in Europe. “I’d be very cautious,” he added. “I don’t want to spoil the party, but I feel that in our business we’re doing much better in the rest of the world than in Europe.”
And he said there were a number of underlying competitiveness issues — energy costs, labor restrictions and weak innovation — that made the longer-term outlook cloudy for Europe.
Jack Ewing contributed reporting from Frankfurt.