London: The euro zone services economy jumped back almost to recovery in August, and is on course to grow in the current quarter led by a resurgent Germany and France, key data showed on Thursday.
The data should reassure the European Central Bank as it meets that the worst of a severe recession is over even though a return to economic growth may be slow while unemployment remains high. It is widely expected to leave rates on hold at a record low of 1.0% later in the day.
Markit’s Eurozone Final Services Purchasing Managers’ Index of around 2,000 companies leapt to 49.9 from 45.7 in July, and was even higher than the 49.5 recorded for the flash.
It is also just shy of the 50.0 mark that divides growth from contraction, suggesting that if the trend continues the euro zone economy will return to growth in the current quarter.
That was backed by forecasts made by the Organisation for Economic Cooperation and Development on Thursday showing the euro zone would post 0.3% growth in the third quarter.
Last quarter the euro zone economy shrank 0.1%, but less than a record 2.5% in the first.
Financial markets were little moved by the data. But some economists said it showed signs a recovery was spreading across the euro zone. Data also showed the UK PMI jumped to its highest level since September 2007.
“This really supports the case that this is a broad economic recovery, still dependent on the stimulus of monetary and fiscal policy, but it looks like we are on safer ground with regards to recovery in the euro area,” said Juergen Michels at Citi.
Data showed a divergence among the euro zone’s four largest economies. Germany’s services PMI jumped to its highest since May last year in August, surging to 53.8 from 48.1.
France too closed in on the recovery level at 49.3, up from 45.5 the previous month. But Italy and Spain both lagged some way off the 50.0 mark despite a noticeable improvement in both countries.
A revision in the main euro zone services PMI from the flash was partly the result of a change in the incoming new business index, which rose to 48.6 in August from 44.2 in July, and up from the 48.2 flash.
The stronger services PMI, coupled with an improved outlook in the euro zone’s factories sector, took the Composite index of the two to its best level since last May. It was revised up to 50.4 from 47.0 in July and the 50.0 flash.
That would show the euro zone economy edging back in to growth territory. But the OECD still forecast the euro area economy to contract by 3.9% this year.
Job losses to hinder recovery?
The euro zone economy is still shedding jobs at a fast rate, but the survey showed a slowdown in that pace.
The Composite employment index of both manufacturing and services rose to 46.0 in August from 42.7 in July, a slight revision up from 45.8 at the time of the flash.
That still confirmed that euro zone companies have been shedding jobs for 14 straight months. Official euro zone unemployment rose to 9.5 percent in July, leaving the number of jobless in the euro zone at just over 15 million.
Some economists warn that if demand cannot pick up, then a recovery may well be slow or even stutter.
“Sales are still dependent on heavy price discounting and accommodative monetary and fiscal stimuli,” said Rob Dobson, senior economist at Markit. He warned against an early exit from ultra loose policies set up by governments and the ECB.