After grinding through recession for six consecutive quarters since the economy started to contract in late 2011, Markit Flash Eurozone PMI surprised economists with a jump to 50.4 in July, signaling a return to growth in output by breaking back above the neutral 50 level.
The flash composite PMI, that measures business activity in both manufacturing and services sectors, rose to an 18-month high of 50.4 in July from 48.7 in June, while analysts had forecast the index to rise to 49.1, a preliminary report from Markit Economics showed Wednesday.
The jump in Markit’s “flash” Eurozone Composite PMI to 50.4, which marked the first expansion since January, 2012, should hearten European Central Bank policymakers who have promised to do whatever it takes to pull the 17-country euro zone out of the longest recession in the bloc’s history.
The improvement observed in the euro area manufacturing PMI was widespread with all components showing a monthly gain. In particular, output jumped by 2.4 to 52.3 and increased for the third month running, while new orders gained 1.1 to 50.4, the first reading above the 50 threshold since May 2011. The upward move in new orders was mainly due to the export markets, as the new export orders sub-component increased by 1.8 to 50.9, wiping out the previous monthly loss.
In terms of countries, Germany and France flash manufacturing PMI showed healthy monthly gain in July, both above consensus expectations. Indeed, the German flash manufacturing PMI improved significantly from 48.6 in June to 50.3 in July, mainly due to a remarkable rise in output component. In France, the index picked up by 1.4 to 49.8 in July, the sixth consecutive monthly improvement in a row.
Economists expect the economy to have stagnated in the second quarter of this year. But Wednesday’s survey data — based on a broad upturn in manufacturing — point to a return to growth in the July-September period. “If we assume the index broadly stays at its current level, that would already imply a slight positive quarter-on-quarter GDP reading for Q3,” noted Gizem Kara, European economist at BNP Paribas.
But data showing China‘s factories lost momentum again this month dulled the good news in Europe and boded ill for companies exposed to the world’s second largest economy. Chinese growth has slowed in nine of the past 10 quarters. China’s overall PMI of business conditions fell to 47.7 from June’s final reading of 48.2, its weakest since August 2012 and its third straight month below 50.
“This print could reignite fears of a Chinese hard landing,” said Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore. “We expect economic growth to continue moderating towards 7 per cent.”
Chinese leaders, meanwhile, have stressed in recent weeks that reform is their priority. But they have also been at pains to assure investors that Beijing will not allow the economy to slip too far.
Finally, The preliminary U.S. Manufacturing Purchasing Managers’ Index (PMI) report for July jumped to 53.2 from 51.9 in June and indicates faster rate of improvement in business conditions and
solid rise in new orders, with new export orders returning to growth.
Although economic data suggest that the Euro area economy is finally emerging from recession, Europe’s economy is not by any means fixed – the European Central Bank (ECB) reported another big fall in bank lending, particularly to firms.