Euro-Area Manufacturing Activity Shrinks Less Than Estimated

Euro-area manufacturing output contracted less than initially estimated in May, adding to signs the currency bloc’s economy is beginning to emerge from a record-long recession.

A gauge of manufacturing in the 17-nation euro area increased to 48.3 last month from 46.7 in April, London-based Markit Economics said today. That’s above an initial estimate of 47.8 on May 23. The gauge has been below 50, indicating contraction, since July 2011.

Today’s PMI report followed encouraging euro-zone industrial confidence and trade data released last month that showed the currency bloc edging toward an economic recovery. The 18-month recession will end in the second quarter, as the economy stagnates before returning to growth in the following three months, according to a Bloomberg News survey of economists.

“Although the euro-area manufacturing economy continued to contract in May, it is reassuring to see the rate of decline ease to such a marked extent,” Chris Williamson, chief economist at Markit, said in the report. “The sector still seems some way off stabilizing, however, and therefore remains a drag on the economy.”

The euro advanced against the U.S. dollar on the manufacturing data. The European currency traded at $1.3038 at 10:11 a.m. in Brussels, up 0.3 percent on the day.

‘Possible Stabilization’

The European Central Bank has cut its benchmark rate to a record low of 0.5 percent and is exploring unconventional ways of channeling money to needy companies, especially in the south. ECB President Mario Draghi said today in Shanghai that while the economic outlook in the euro area is “challenging” he still anticipates a recovery this year.

“There are a few signs of a possible stabilization,” Draghi said in the text of a speech in Shanghai. “Our baseline scenario continues to be one of a very gradual recovery starting in the latter part of this year.”

In China, the world’s second-largest economy, manufacturing indexes showed small businesses struggling, sapping growth momentum. The official Purchasing Managers’ Index for smaller companies fell to 47.3 in May from 47.6 the previous month, even as the broader gauge rose to 50.8 from 50.6, the government said on June 1.

Factory Activity

In the U.S., the biggest economy, manufacturing probably made little progress in May, economists said before a report due later today. The Institute for Supply Management’s factory index held at 50.7 last month, matching the weakest this year, according to the median forecast in a Bloomberg survey of 71 economists. Construction outlays rebounded in April, other figures may show.

U.S. factory activity has waned since reaching an almost two-year high in February as across-the-board federal budget cuts took hold and overseas markets struggled to improve. At the same time, demand for automobiles, a rebound in residential construction and lean inventories may spark a pickup in orders and production in the second half.

In Europe, PSA Peugeot Citroen, Europe’s second-biggest carmaker, said demand for new vehicles in the region has started to stabilize at a “very low level,” after European Union car sales rose 1.8 percent in April, the first gain since September 2011.

Even so, the auto market is near a two-decade low. Maxime Picat, head of the manufacturer’s Peugeot brand, said May 22 that industry sales in Europe will fall 5 percent this year in the sixth consecutive annual decline, and that it’s too early to predict a rebound.

To contact the reporter on this story: Patrick Henry in Brussels at phenry8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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