Euro-Area July Services Output Contracts Less Than Estimated

Photographer: Mario Proenca/Bloomberg

A waiter serves beverages to customers as they sit outside a restaurant in Lisbon. Close

A waiter serves beverages to customers as they sit outside a restaurant in Lisbon.

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Photographer: Mario Proenca/Bloomberg

A waiter serves beverages to customers as they sit outside a restaurant in Lisbon.

Euro-area services output shrank at a slower pace than initially estimated in July, adding to evidence the economy is gathering strength to pull out of a record-long recession.

An index of activity in the services industry based on a survey of purchasing managers rose to 49.8 from 48.3 in June, London-based Markit Economics said in a report today. That’s above an initial estimate of 49.6 on July 24. A reading below 50 indicates contraction.

Manufacturing in the 17-nation economy expanded at a faster pace than initially estimated last month as the industry resumed growth after two years of contraction. European Central Bank President Mario Draghi said last week that recent indicators signal the euro zone is past the worst of the slump and data “tentatively confirm the expectation of a stabilization in economic activity.”

Today’s report “fuels hope that euro-zone GDP has finally stopped contracting and is on course to eke out marginal growth over the second half of the year,” said Howard Archer, chief European economist at IHS Global Insight in London. “The hope for the euro zone is that current rising confidence encourages businesses to increasingly pare back their job cutting and become more prepared to invest, and also encourages consumers to spend more.”

Factory Gauge

The euro was higher against the U.S. dollar, trading at $1.3292 at 11:06 a.m. in Brussels, up 0.1 percent on the day. The Stoxx Europe 600 Index gained 0.5 percent.

The euro-area factory gauge increased to 50.3 last month from 48.8 in June, Markit said on Aug. 1. That exceeded the estimate of 50.1 published on July 24. A composite index of both manufacturing and services rose to 50.5 in July from 48.7 in the prior month, topping the 50 mark for the first time since January 2012, Markit said today.

The report “confirms a welcome return to growth for the euro-zone economy at the start of the third quarter, raising hopes that the region can finally claw its way out of its longest-running recession,” Rob Dobson, senior economist at Markit, said in the report. “Manufacturing (PMITMEZ) is leading the way out of contraction, with some nations benefitting from improved export demand.”

China’s Economy

In Asia, China’s economy is showing signs of stabilizing after slowing for two quarters, with official manufacturing and services indexes rising and gains in gauges of business expectations. The non-manufacturing Purchasing Managers’ Index increased to 54.1 in July from 53.9, the first acceleration since March, government data showed on Aug. 3, following last week’s unexpected gain in a manufacturing PMI.

Europe’s economy, which has contracted for six straight quarters, probably stagnated in the three months through June and will return to growth this quarter, according to a Bloomberg survey of economists on July 11. A separate report today showed that euro-area retail sales declined 0.5 percent in June, the first drop in three months.

Allianz SE (ALV), Europe’s largest insurer, posted second-quarter profit on Aug. 2 that beat analyst estimates after higher earnings at its non-life and asset-management units. Net income rose 27 percent to 1.59 billion euros ($2.1 billion) from a year earlier, the Munich-based company said.

Deutsche Lufthansa AG (AF), Europe’s second-largest airline, said on Aug. 2 that second-quarter operating profit rose to 438 million euros from 269 million euros a year earlier, when adjusted for restructuring costs and one-time items.

“Euro-area economic activity should stabilize and recover at a slow pace,” Draghi said on Aug. 1. “The risks surrounding the economic outlook for the euro area continue to be on the downside.”

To contact the reporter on this story: Fergal O’Brien in London at fobrien@bloomberg.net

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

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