Spain and Italy resurgence helps eurozone factory output to expand

Eurozone factory output expanded at a faster pace than initially estimated in August, driven by a resurgence in Italy and Spain, as the 17-nation currency bloc’s recovery began to build momentum.

An index based on a survey of purchasing managers in the manufacturing industry increased to a 26-month high of 51.4 from 50.3 in July, London-based Markit Economics said. That’s above an estimate of 51.3 published on Aug 22. A reading above 50 indicates growth.

Encouraging indicators have begun to accumulate since the eurozone returned to growth in the second quarter, ending a record-long recession. Economic confidence soared to a two-year high in August. The Stoxx Europe 600 Index has risen 5% in the last two months, and the euro gained 1.8% against the dollar.

“What’s especially encouraging is that the upturn is broad-based, with PMIs rising in all countries with the exception of France,” Chris Williamson, chief economist at Markit, said in yesterday’s report. “Germany, the Netherlands, Austria, Spain and Italy are all seeing manufacturing grow at the fastest rates for at least two years, and even Greece saw a marked easing in the rate of manufacturing decline.”

The euro was lower against the dollar after the data were released, trading at $1.3216 (€1) at 10.59am in Brussels, down less than 0.1% on the day.

In Italy, factory output accelerated in August at the fastest pace in 28 months, boosted by an increase in new orders that partly reflected a substantial growth in export sales, Markit said.

Spanish manufacturing expanded in August for the first time in more than two years, strengthening Prime Minister Mariano Rajoy’s prediction that exports will help the economy emerge from recession this year.

“Looking ahead, the hope for manufacturers is that currently improving confidence in most eurozone countries will encourage businesses to invest more, and also encourage consumers to spend more, particularly on durable goods,” said Howard Archer, chief European economist at IHS Global Insight in London.

Mercedes-Benz, the world’s third-biggest luxury carmaker, produced more vehicles than ever before in the first half to cover demand for its new compact models and sport-utility vehicles.

The European car market, which is heading into the sixth straight year of decline, is stabilising, Germany’s VDA automobile industry association said on Aug 16.

Yet Europe continues to struggle with the legacy of a debt crisis now in its fourth year, including a jobless rate that held at a record 12.1% in July. The rate among young people increased to 24%.

Unemployment is proving resistant to Europe’s improving fortunes, and may help to explain why economists in a Bloomberg News survey see growth slowing to 0.1% in the third quarter after a 0.3% expansion in the three months through June. Analysts forecast the jobless rate won’t drop below 12% through 2015.