European Services Expand for First Time in 19 Months

Euro-area services expanded in August for the first time in 19 months, led by Germany, after the 17-nation currency bloc’s economy emerged from a recond-long recession.

An index based on a survey of purchasing managers rose to 51 from 49.8 in July, London-based Markit Economics said today. Economists forecast an increase to 50.2, according to the median of 32 estimates in a Bloomberg News survey. A reading above 50 indicates expansion.

Gross domestic product in the euro region rose 0.3 percent in the three months through June after six quarterly contractions. The expansion was led by the region’s two biggest economies, Germany and France. At least four euro countries remain in recessions, including Italy and Spain.

“We have seen some improvement in recent months, but we’re starting from very low levels,” said Frederik Ducrozet, an economist at Credit Agricole CIB in Paris. “There’s a good chance the economy will pick up further in the second half of the year. Spain and Italy might start growing again as well.”

The euro erased losses against the dollar after the data were released, and was little changed on the day at $1.3356 at 10:14 a.m. in Brussels.

Markit’s euro-area manufacturing index indicated expansion for a second month in August, rising to 51.3 from 50.3 a month earlier. A composite index covering services and factory output also showed expansion for a second month, rising to 51.7 from 50.5.

Chinese Output

The manufacturing index for Germany, Europe’s largest economy, soared to a 25-month high of 52 in August, Markit said today in a separate report. The German services gauge rose to a six-month high of 52.4.

The encouraging economic news from Europe followed Chinese data that showed manufacturing unexpectedly expanded in August, adding to signs the world’s second-biggest economy is strengthening after a two-quarter slowdown.

The preliminary reading of 50.1 for a Purchasing Managers’ Index released today by Markit and HSBC Holdings Plc compares with a final figure of 47.7 in July. The number exceeded all 16 estimates in a Bloomberg News survey and was the first reading since April above the 50 mark that divides contraction from expansion.

The European Central Bank said in July it would keep interest rates low for an extended period of time after it cut its benchmark rate to a record low of 0.5 percent in May. While ECB President Mario Draghi said this month that risks to the economy continue to be on the downside, he expects a gradual recovery in the second half of the year.

‘Quite Impressive’

“The actual figures are quite impressive,” Draghi said on Aug. 1. “There have been strong increases in exports, not only in Germany, but also in Spain and Italy, which shows that something has happened to reform and enhance competitiveness.”

Spain reduced its trade balance deficit in May to 27.5 million euros from 1.6 billion euros in April. The country in March posted its first trade surplus since the the euro was introduced in 1999. Italy posted a fifth straight trade surplus in June.

Hamburger Hafen & Logistik AG, the handler of about 80 percent of containers at Hamburg’s port, raised its 2013 volume forecast on Aug. 14 after Asian trade gathered pace and Baltic Sea traffic amplified.

At the same time, the euro-area unemployment rate is at a record high 12.1 percent and some companies are still cutting jobs amid Europe’s debt crisis, now in its fourth year.

German Steel

Salzgitter AG, the German steelmaker that cut its forecast on Aug. 5 amid waning demand in Europe, last week announced plans to shed more than 1,500 jobs as it seeks to save more than 200 million euros.

The ECB expects the euro-area economy to shrink 0.6 percent this year before growing 1.1 percent in 2014.

“The recession may be over for now but we’ll only see very moderate growth for quite some time in Europe,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. “Unemployment will rise further and there’s a chance for the crisis to return with full force later this year.”

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