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Euro-Area Manufacturing Grows More Than Initially Estimated

Photographer: Alessia Pierdomenico/Bloomberg

Employees work on the roof section of a Frecciarossa 1000 high-speed train carriage during manufacture at AnsaldoBreda SpA's rail-car plant in Pistoia. Close

Employees work on the roof section of a Frecciarossa 1000 high-speed train carriage... Read More

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Photographer: Alessia Pierdomenico/Bloomberg

Employees work on the roof section of a Frecciarossa 1000 high-speed train carriage during manufacture at AnsaldoBreda SpA's rail-car plant in Pistoia.

Euro-area manufacturing expanded at a faster pace than initially estimated in July as the industry resumed growth after two years of contraction amid increasing signs the economy is pulling out of a record-long recession.

A manufacturing index based on a survey of purchasing managers in the industry increased to 50.3 last month, topping the 50 mark for the first time since July 2011, London-based Markit Economics said today. A reading above 50 indicates growth. The July reading was up from 48.8 in June and above an earlier estimate of 50.1 on July 24.

Europe’s economy is forecast to return to growth this quarter after being mired in a recession for more than a year. Economic confidence among executives and consumers in the euro area improved in July to a 15-month high, while manufacturers’ capacity utilization is at the highest in more than a year.

“Euro-zone manufacturing made a positive start to the third quarter,” Rob Dobson, senior economist at Markit, said in the report. “This hopefully places the sector nicely to provide a positive spur to the third quarter GDP numbers and help the euro area exit recession.”

The euro was lower against the U.S. dollar after the data, trading at $1.3235 as of 10:18 a.m. in Brussels, down 0.5 percent. The Stoxx Europe 600 Index gained 0.5 percent.

‘Extended Period’

European Central Bank President Mario Draghi has pledged to keep interest rates low for an “extended period” in his latest bid to encourage a recovery. The ECB is expected to keep the benchmark rate unchanged at a record low of 0.5 percent when policy makers meet today in Frankfurt, according to a Bloomberg survey of economists.

Draghi said last month that euro-area export growth “should benefit from a gradual recovery in global demand.”

In China, the world’s second-biggest economy, manufacturing gauges today gave a mixed picture and the government in Beijing pledged to prevent economic growth from slipping below a “reasonable” level.

Gross domestic product in the euro-area economy, which has contracted for six quarters, probably stagnated in the three months through June and is projected to return to growth in the current quarter, according to a separate Bloomberg survey of economists. The International Monetary Fund forecasts the bloc’s economy will shrink 0.6 percent this year.

Rising Confidence

“The hope for manufacturers is that current rising confidence in most euro-zone countries increasingly encourages businesses to invest more, and also encourages consumers to lift their spending,” said Howard Archer, chief European economist at IHS Global Insight in London. “Even so, conditions remain far from easy for euro-zone manufacturers with domestic demand still constrained by strong headwinds in a number of countries.”

The euro-area unemployment rate remained unchanged in June at 12.1 percent, data showed yesterday. That matched the highest on record after the jobless rate for May was revised down to that figure from an initially reported 12.2 percent.

In Germany, Europe’s largest economy, a manufacturing gauge moved into growth territory for the first time since February. France’s factory index rose to 49.7 from 48.4 in June, Markit said in a separate report.

PSA Peugeot Citroen, Europe’s second-largest automaker, yesterday reported a narrower-than-estimated loss in the first half as a tighter rein on costs offset a decline in deliveries that outpaced the economy’s contraction. The Paris-based company forecast that the European car market, on track for a sixth straight annual drop, will shrink by about 5 percent this year.

Markit’s services gauge for the euro area rose to 49.6 in July from 48.3 in June, according to an initial estimate on July 24. A composite index of manufacturing and services output increased to 50.4, an 18-month high. Final figures for the services and composite indexes will be published on Aug. 5.

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

To contact the editor responsible for this story: Fergal O’Brien at fobrien@bloomberg.net

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