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News : EU Economy Last Updated: Jul 30, 2013 - 7:43 AM

Eurozone stabilises as manufacturing/ services PMI hits one-and-a-half year high
By Finfacts Team
Jul 24, 2013 - 10:26 AM

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The Eurozone manufacturing and services sectors stabilised in July as the PMI (purchasing managers' index) hit one-and-a-half year high.

The Markit Eurozone PMI Composite Output Index rose above the 50.0 no-change level in July for the first time since January 2012, according to the flash estimate. The PMI rose for the fourth successive month, up from 48.7 in June to 50.4.

Manufacturers reported the largest monthly increase in output since June 2011, registering an expansion for the first time since February of last year. Service sector activity meanwhile fell only marginally, recording the smallest decline in the current 18-month sequence and showing signs of stabilising after the marked rates of decline seen earlier in the year.

New orders fell only marginally during the month, registering the smallest decline since August 2011. The rate of loss of new orders has now eased for four straight months, helping the rate of decline in backlogs of work ease to the slowest for nearly two years in July.

New orders for manufactured goods rose for the first time since May 2011, buoyed by a slight increase in new export orders. Incoming new business in the service sector meanwhile continued to decline, although the drop was the smallest seen since March of last year.

The easing in the rate of loss of new business was a factor helping drive expectations for service sector business growth in the year ahead to the highest since April. The rate of job losses eased during the month, dropping to the lowest since March 2012. Rates of job losses eased in both manufacturing and services to 18- and 13-month lows respectively.

Input costs showed the first noteworthy increase for four months, although the rate of inflation remained lower than seen at the start of the year. Lower manufacturing input prices contrasted with faster growth of service sector costs.

Intense competition caused prices charged for both goods and services to fall again, however, dropping at an identical rate to June on average.

By country, output rose at the fastest rate for five months in Germany. Service sector growth hit a five-month high while manufacturers reported the steepest monthly increase in output since February of last year. Overall job creation hit the highest since March.

In France, the rate of decline eased to the slowest seen since output began falling in March 2012. This was buoyed by a return to growth in manufacturing, which reported the largest rise in production for 17 months. The service sector meanwhile saw the smallest downturn in activity for 11 months.

Employment fell across both sectors, though to the weakest extent since April 2012 Outside of the two biggest member states output fell only marginally, posting the smallest decline since June 2011. New business fell at the slowest rate since May 2011. The „periphery‟ likewise saw a corresponding easing in the rate of job losses to the weakest since September 2011, though the rate of job cutting remained solid.

Chris Williamson, chief economist at Markit said: “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. 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 ECB in particular will be feeling much more confident in its expectation of the region returning to growth by the end of the year."

The Eurozone PMI (purchasing managers' index) is produced byLondon-based  Markit and is based on original survey data collected from a representative panel of around 5,000 companies based in the euro area manufacturing and service sectors. National manufacturing data are included for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece. National services data are included for Germany, France, Italy, Spain and the Republic of Ireland. The flash estimate is typically based on approximately 85%–90% of total PMI survey responses each month and is designed to provide an accurate advance indication of the final PMI data.

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