Rise in eurozone services index signals possible pick-up in economy

Eurozone services expanded in August for the first time in 19 months after the 17-nation bloc’s economy emerged from a record-long recession.

An index based on a survey of purchasing managers rose to 51 from 49.8 in July, London-based Markit Economics said yesterday. A reading above 50 indicates expansion.

GDP in the region rose 0.3% in the three months through June after six quarterly contractions. The expansion was led by Germany and France. At least four euro countries remain in recession, including Italy and Spain.

“We have seen some improvement in recent months, but we’re starting from very low levels,” said Frederik Ducrozet, an economist at Credit Agricole in Paris. “There’s a good chance the economy will pick up further in the second half of the year. Spain and Italy might start growing again as well.”

Markit’s euro-area manufacturing index indicated expansion for a second month in August, rising to 51.3 from 50.3. A composite index covering services and factory output also showed expansion for a second month, rising to 51.7 from 50.5.

The encouraging economic news from Europe followed Chinese data that showed manufacturing unexpectedly expanded in August, adding to signs the world’s second-biggest economy is strengthening after a two-quarter slowdown.

The ECB said last month it would keep interest rates low for an extended period of time after it cut its benchmark rate to a record low of 0.5% in May. While ECB president Mario Draghi said this month that risks to the economy continue to be on the downside, he expects a gradual recovery in the second half of the year.

“The actual figures are quite impressive,” Mr Draghi said on Aug 1.

“There have been strong increases in exports, not only in Germany, but also in Spain and Italy, which shows that something has happened to reform and enhance competitiveness.”

- The ECB expects the euro economy to shrink 0.6% this year before growing 1.1% in 2014.

Bloomberg

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