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Euro-Area Factory and Services Output Expands for Second Month

Euro-area services and factory output expanded for a second month in August, adding to signs that the currency bloc’s economic revival is gaining pace.

A composite index based on a survey of purchasing managers in both industries rose to 51.5 from 50.5 in July, London-based Markit Economics said today. That’s below an Aug. 22 estimate of 51.7 and is the highest level since June 2011.

Today’s release is the latest to support the European Central Bank’s projection of a gradual recovery in the second half after the euro-area economy emerged from its longest-ever recession in the second quarter. Economic confidence soared to a two-year high in August, and the Stoxx Europe 600 Index is up almost 6 percent in the last two months.

“Things are starting to look better but we have to keep in mind that growth rates are still low,” said Evelyn Herrmann, an economist at BNP Paribas SA in London. “We see encouraging signs from Spain and Italy, and it looks like the periphery is gaining strength. That’s particularly true when you look at this week’s manufacturing data.”

Factory output expanded at a faster pace than initially estimated in August, Markit said on Sept. 2, while the services index registered growth for the first time since January 2012.

In Italy, factory output accelerated last month at the fastest pace in months, boosted by an increase in new orders. Spanish manufacturing expanded for the first time in more than two years, strengthening Prime Minister Mariano Rajoy’s prediction that the economy will emerge from recession this year.

ECB Forecast

The euro-area economy grew 0.3 percent in the three months to June, led by its largest economies, Germany and France. The ECB will release new growth projections tomorrow when policy makers gather in Frankfurt for their monthly rate meeting. The central bank currently predicts the economy to shrink 0.6 percent this year before growing 1.1 percent in 2014.

“The risks surrounding the economic outlook for the euro area continue to be on the downside,” ECB President Mario Draghi said on Aug. 1 after leaving the benchmark interest rate at a record low of 0.5 percent. Borrowing costs will remain at current levels or lower for an extended period of time, he said.

Daimler AG (DAI)’s Mercedes-Benz brand, 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. “We are planning for further growth,” Andreas Renschler, head of manufacturing, said on Aug. 16.

Debt Crisis

Some European companies are still feeling the pain from the sovereign debt crisis, now in its fourth year, and unemployment remains at a record 12.1 percent.

Schaeffler AG, the family-owned bearing maker that’s the biggest investor in car-parts producer Continental AG (CON), on Aug. 28 lowered its 2013 sales forecast on weaker demand for industrial components.

Reforms in the euro-area economy are “showing the first signs of success,” Angela Merkel, who seeks a third term as German chancellor in a Sept. 22 election, said last week. At the same time, “in some areas in some countries we’re not good enough, not competitive enough to make products that can be sold,” she said.

To contact the reporter on this story: Stefan Riecher in Frankfurt at sriecher@bloomberg.net

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

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