Europe Manufacturing Expands for First Time in Two Years

Euro-area manufacturing unexpectedly expanded in July for the first time in two years, led by Germany, adding to signs the currency bloc’s economy is emerging from a record-long recession.

A manufacturing index based on a survey of purchasing managers rose to 50.1 from 48.8 in June, London-based Markit Economics said today. That exceeds the median estimate of 49.1 in a Bloomberg News survey of 39 economists. A reading above 50 indicates growth.

The encouraging news from Europe contrasted with China, the world’s second-largest economy, where manufacturing weakened more than estimated in July, a separate Markit report showed, casting further doubt on the government’s ability to meet its annual economic growth target.

The “figures clearly support the notion that the euro-zone economy as a whole is leaving recession behind,” said Martin van Vliet, an economist at ING Bank NV in Amsterdam. “The monetary stimulus from the ECB, the earlier pick-up in the world economy and the overall slower pace of fiscal austerity have finally managed to stop the economic contraction.”

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

Draghi’s Pledge

The euro rose for a fourth day against the dollar, advancing 0.2 percent to $1.3246 as of 12:50 p.m. London time. The Stoxx Europe 600 Index added 0.9 percent.

European Central Bank President Mario Draghi said earlier this month that euro-area export growth “should benefit from a gradual recovery in global demand.” With risks to the outlook still to the “downside,” Draghi also pledged to keep interest rates low for an “extended period,” his latest bid to encourage a recovery. The ECB’s benchmark rate is at a record low 0.5 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 49.8 from 48.4 in June, Markit said in a separate report.

‘Gradual Improvement’

Daimler AG, the world’s third-largest maker of luxury vehicles, forecast significant gains in second-half earnings as the western European auto market bottoms out and new models spur demand.

Daimler expects industrywide demand in western Europe to show “gradual improvement” as sales seem to have “bottomed out,” it said today in a statement.

Markit’s services gauge for the euro area rose to 49.6 in July from 48.3 in June. A composite index of manufacturing and services output increased to 50.4, an 18-month high.

Today’s data “provide a summer fillip to policy makers, especially in terms of there being light at the end of the tunnel for austerity-hit periphery countries where political and social tensions have risen,” said Chris Williamson, Markit’s chief economist. “The ECB in particular will be feeling much more confident in its expectation of the region returning to growth by the end of the year.”

In China, the reading of 47.7 for a manufacturing index released by HSBC Holdings Plc and Markit, if confirmed in the final report Aug. 1, would be the lowest in 11 months. The median estimate of 19 economists surveyed by Bloomberg News was for 48.2, the same level as in June.

“The key thing now is confidence,” Qu Hongbin, HSBC’s chief China economist in Hong Kong, said on Bloomberg Television. “The confidence now is pretty weak both in the financial market and the corporate sector.”

Markit’s U.S. manufacturing gauge probably increased to 52.6 from a previously reported 51.9 in June, according to a Bloomberg survey. The release comes at 2 p.m. London time.

Also today, Commerce Department data will show U.S. purchases of new homes increased to a 484,000 pace last month, the highest level since June 2008, according to another survey.

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