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Euro-Area Services, Factory Output Rises More Than Forecast

Euro-Area Services, Factory Output Rises More Than Forecast
In Germany, Europe’s largest economy, the services industry expanded at the fastest pace in four months in June, while manufacturing continued to contract. Photographer: Krisztian Bocsi/Bloomberg

Euro-area services and factory output increased more than economists forecast in June, adding to signs the currency bloc may emerge from its record-long recession in the second quarter.

A composite index based on a survey of purchasing managers in both industries rose to 48.9 from 47.7 in May, London-based Markit Economics said today. That is the highest in 15 months and exceeded the median estimate of 48.1 in a Bloomberg News survey of 26 economists. A reading below 50 indicates contraction.

The six-quarter contraction in the euro-area economy is forecast to end in the April-June period, when economists project gross domestic product will stagnant before growing 0.1 percent in the third quarter, according to a Bloomberg survey. Still, a slowdown in Chinese manufacturing is raising concerns that European exports may struggle to help the recovery at a time when budget cuts continue to damp consumer spending.

Today’s report “reinforces the view that the euro-zone recession is gradually petering out,” said Martin van Vliet, senior euro-area economist at ING Bank NV in Amsterdam. “Please note, however, that any further recovery later in the year is likely to be very slow and bumpy.”

Services Industry

The euro extended declines against the U.S. dollar after the purchasing-managers data. The European currency traded at $1.3203 at 10:46 a.m. in Brussels, down 0.7 percent on the day.

A euro-area gauge based on a survey of purchasing managers in the services industry rose to 48.6 in June from 47.2 in May, according to today’s report. A measure of euro-area manufacturing output increased to 48.7 this month from 48.3 in May.

In Germany, Europe’s largest economy, the services industry expanded at the fastest pace in four months in June, while manufacturing continued to contract. The German services index rose to 51.3 this month from 49.7 in May, Markit said. A gauge of German manufacturing fell to 48.7 in June from 49.4 in the prior month.

The European Central Bank cut its growth projections for the euro zone this month and now predicts the 17-nation economy will shrink 0.6 percent this year before growing 1.1 percent in 2014. Today’s data on services and factory output followed a June 18 report showing that European car sales fell to a 20-year low in May after unemployment in the euro area reached a record high of 12.2 percent in April.

Domestic Demand

“High unemployment and still-weakening housing markets will also keep domestic demand in many euro-zone countries subdued,” Van Vliet said. “At the same time, the recent weakness in the Chinese manufacturing PMI is a reminder that a strong euro-zone export recovery is unlikely either.”

A Chinese manufacturing Purchasing Managers’ Index fell to 48.3 in June from 49.2 in May, according to a preliminary reading released today by HSBC Holdings Plc and Markit Economics. Last month’s reading was the first below 50 since October. The latest data on European exports shows that shipments decreased a seasonally adjusted 0.8 percent in April, the first decline in four months.

Some European companies are dealing with weaker demand by cutting costs. Germany’s Daimler AG Chief Executive Officer Dieter Zetsche said on June 12 earnings have improved in the second quarter as new models win buyers and the Mercedes-Benz car unit reduces costs faster than anticipated.

While the Frankfurt-based ECB left its benchmark rate at a record low of 0.5 percent on June 6, policy makers stand ready to act further if economic conditions worsen, ECB President Mario Draghi said on June 18. Recent economic survey data are showing “some improvement, but from low levels,” he said.

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