Euro-Area Services, Manufacturing Unexpectedly Slow

Photographer: Angel Navarrete/Bloomberg

Markit’s index of euro-area factory output increased to 51.3 from 51.1. Close

Markit’s index of euro-area factory output increased to 51.3 from 51.1.

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Photographer: Angel Navarrete/Bloomberg

Markit’s index of euro-area factory output increased to 51.3 from 51.1.

Euro-area services and manufacturing output unexpectedly slowed in October as the recovery in the currency bloc struggled to gain momentum.

A composite index based on a survey of purchasing managers in both industries declined to 51.5 this month from 52.2 in September, London-based Markit Economics said today. Economists had forecast the indicator would rise to 52.4, according to the median of 24 estimates in a Bloomberg News survey. A reading above 50 indicates expansion. Factory output in China increased more than expected this month, separate data showed.

Markit’s services-output index unexpectedly declined in October, while a gauge of factory output increased less that economists projected. European Central Bank President Mario Draghi said on Oct. 2 that the bank will keep key interest rates “at present or lower levels for an extended period,” based in part on the “broad-based weakness” in the economy.

“There are green shoots, but the recovery is still very, very immature,” said Alberto Gallo, head of European macro credit research at Royal Bank of Scotland Group Plc.

The October gauge of services output in the 17-nation currency bloc fell to 50.9 from 52.2 in September, today’s report showed, while Markit’s index of euro-area factory output increased to 51.3 from 51.1. Economists had forecast the services indicator to remain at 52.2 and the factory gauge to rise to 51.4, according to separate Bloomberg surveys.

‘Fragile’ Recovery

The euro was off its highs against against the dollar after the data. The single currency traded at $1.3785 at 10:17 a.m. in London, up less than 0.1 percent on the day after trading as high as $1.3822 earlier.

“The dip in the PMI will remind policymakers that a sustainable upturn is by no means assured, and adds confirmation to the ECB’s view that the recovery is slow, uneven and fragile,” Chris Williamson, Markit’s chief economist, said in today’s report. “Attention is likely to be focused on whether the region requires more policy action to boost the recovery rather than on the timing of any withdrawal of stimulus.”

In China, a gauge of manufacturing strengthened more than anticipated this month, thought the report was overshadowed by concern that the government could tighten credit and clamp down further on the property market. The preliminary 50.9 reading for a Purchasing Managers’ Index released by HSBC Holdings Plc and Markit Economics compared with a 50.4 median estimate in a Bloomberg survey of analysts.

Unemployment

Elsewhere in the Asia-Pacific region, New Zealand’s trade deficit narrowed in September from the previous month, while Vietnam’s inflation slowed in October.

In Europe, economists see euro-area economic growth slowing to 0.2 percent in the third quarter after a 0.3 percent expansion in the three months through June, according to another Bloomberg survey. Near-record unemployment is limiting the euro-area recovery.

The bloc’s jobless rate held at 12 percent. Economists surveyed by Bloomberg expect the jobless rate to peak at 12.2 percent by the end of this year, before falling to 12 percent by 2015.

Siemens AG (SIE), Europe’s its biggest engineering company, is cutting jobs as part of a drive to improve profit margins. Siemens will cut 4 percent of its 370,000 workers worldwide, with a third of the reduction in the German home market.

Car Sales

Still, there are some indications that the labor market is starting to recover. The unemployment rate in Spain declined to 25.98 percent in the third quarter from 26.26 percent in the previous three months, data showed today.

There are other signs that the economy is strenghthening. European new car sales rose the most in more than two years in September, helped by a government incentive program in Spain. Euro-area consumer confidence rose for an 11th month in October, according to the European Commission.

German porcelain manufacturer Villeroy & Boch AG said this week that in key euro-area markets “the downturn in economic output slowed despite the sustained high level of unemployment.”

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net

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

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