Euro zone economy shows signs of recovery

LONDON Tue Feb 5, 2013 4:48pm IST

A picture illustration taken with the multiple exposure function of the camera shows a one Euro coin and a map of Europe, January 9, 2013. REUTERS/Kai Pfaffenbach/Files

A picture illustration taken with the multiple exposure function of the camera shows a one Euro coin and a map of Europe, January 9, 2013.

Credit: Reuters/Kai Pfaffenbach/Files

Related Topics

Polluted waters of China

Polluted waters of China

Growing cities, overuse of fertilizers, and factory wastewater have degraded China's water supplies to the extent that half the nation's rivers and lakes are severely polluted.  Slideshow 

LONDON (Reuters) - The euro zone's battered economy is probably recovering but the gulf between its two biggest members is widening, according to a survey on Tuesday that showed business optimism in the bloc at an eight-month high.

Markit's Eurozone Composite PMI, based on business activity across thousands of companies, and a good gauge of economic growth, rose in January to a 10-month high of 48.6 from 47.2 in December - an improvement on the preliminary reading of 48.2.

While still below the 50 mark that divides growth and contraction, where it has been since February last year, it has risen for the third straight month.

Private industry makes up nearly two-thirds of the euro zone's economy.

But the data showed a continued divergence between the euro zone's powerhouse economy Germany and that of neighbouring France that will worry policymakers.

The German PMI chalked up its biggest one-month rise since August 2009, soaring to its highest since June 2011, while the reading for the bloc's second-biggest economy France plummeted to its lowest in nearly four years. The French services PMI was even below readings from perennial laggards Spain and Italy.

"That's a really worrying sign. It's going to cause more tensions between Germany and France ... on various aspects of euro zone management," said Jennifer McKeown, economist at consultancy Capital Economics.

"France will continue to call for more supportive policy, not just for the periphery but the euro zone as a whole. Germany is taking a much more hardline stance."

The euro zone PMI for services firms rose to a 10-month high of 48.6 from 47.8, above a flash estimate of 48.3.

Across the channel in Britain, activity amongst the country's services firms, which account for more than three-quarters of gross domestic product, rose.

"The UK services PMI has bounced back into growth territory, dampening fears over an unprecedented triple-dip recession being called," said James Knightley at ING.

After only one quarter of expansion, Britain's economy contracted again at the end of last year. That put it on the brink of its third recession in four years.

Growth in the United States services business is expected have fallen slightly last month following relative weakness in the private services component of January's payrolls report. The data are due at 1500 GMT.

USEFUL LINKS:

European services PMIs: link.reuters.com/qer29s

Euro zone PMIs and GDP growth: link.reuters.com/rud84s

Global services activity: link.reuters.com/dyh85s

ON THE UP

The euro zone economy probably contracted 0.4 percent at the end of last year, notching up its third negative quarter, and is likely to stagnate in the current period, according to a Reuters poll published last month.

The European Central Bank said after its January policy setting meeting, when it left interest rates on hold at 0.75 percent, that there were already signs of stabilisation, but official data on Tuesday showed retail sales fell by the largest margin in eight months in December.

None of the 75 economists polled by Reuters last week see any shift when the ECB meets on Thursday, however, and median forecasts suggested no change in rates until July 2014 at least - the end of the forecast horizon.

Tuesday's PMI survey showed services firms in their euro zone were more optimistic about the future than at any point since last May.

The business expectations index leaped to 56.4 from 52.5, the biggest one-month rise since August 2009, just as the euro zone emerged from its previous recession.

"New business in the sector improved, and business expectations are also becoming increasingly optimistic. The employment component showed a less encouraging development though," said Evelyn Herrmann at BNP Paribas.

Firms reduced their workforces again last month and at the fastest pace in over three years, with the composite employment index falling to 46.1 from December's 47.3.

Unemployment hit a record 11.7 percent of the working population in December, but inflation fell to a two-year low of 2 percent in January.

Euro zone factories had their best month in nearly a year during January as burgeoning German output offered support, data released last week showed.

(Additional reporting by Olesya Dmitracova; Editing by Catherine Evans)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Top News

REUTERS SHOWCASE

Kerry's India Visit

Kerry's India Visit

Kerry presses India on WTO deal ahead of arrival  Full Article 

Big Infra Deal

Big Infra Deal

Piramal, Dutch APG tie up for $1 bln infra investment  Full Article 

E-Commerce

E-Commerce

Amazon says to invest $2 billion more in India   Full Article 

Lupin Results

Lupin Results

Q1 net profit up 56 percent on higher U.S. drug sales   Full Article 

L&T Slumps

L&T Slumps

L&T earnings raise 'multiple red flags' - Citi  Full Article 

Twitter Results

Twitter Results

Twitter assuages growth concerns for now as shares soar 35 percent  Full Article 

Auto Sector

Auto Sector

VW closes in on Toyota as global auto leader  Full Article 

Fed Meeting

Fed Meeting

Fed seen trimming bond buys, could offer vague rate clues  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage