Eurozone Shows Signs of Emerging from Recession

The eurozone’s private sector may be emerging from a lengthy recession according to the latest purchasing managers index (PMI) issued by Markit and based on output data from thousands of companies across the region.

The index for July rose to 50.4, up from 48.7 in June, driven by improved performances from private sector companies in France and Germany. This was the first time since January 2012 when the index registered above the level of 50 to mark expansion rather than contraction.

Markit reported that new orders only fell marginally, and job losses eased, while the group’s chief economist, Chris Williamson, said the data suggests the eurozone could start growing again soon.

“The best PMI reading for one-and-a-half years provides encouraging evidence to suggest that the euro area could, at long last, pull out of its recession in the third quarter,” he commented

“The revival is being led by a broad-based upturn in manufacturing, where growth surged to a two-year high. Increased goods production was reported in Germany, France and across the rest of the region as a whole.

“There are also promising signs of stabilisation in the service sector, which hints at some much-needed upturns in domestic demand. Rising service sector activity in Germany is being accompanied by slower rates of decline in France and elsewhere across the region.

“Employment continues to fall, but even on the jobs front there is welcome news in that companies are cutting back on headcounts to a lesser extent than earlier in the year.

“The survey data will therefore provide a summer fillip to policymakers, especially in terms of there being light at the end of the tunnel for austerity-hit periphery countries where political and social tensions have risen.

“The European Central Bank (ECB) in particular will be feeling much more confident in its expectation of the region returning to growth by the end of the year.”

Country-specific data showed that the overall figure concealed some sharp differences. Markit’s index for Germany rose to 52.8 in July from 50.4 last month, with the strongest increase in business activity in five months as both the manufacturing and service sectors advanced. However, France’s economic activity continued to contract, although its PMI for July improved to 48.8 from 47.4 in June as stronger manufacturing output offset continuing weakness in the service sector.

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