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End of euro zone factory ‘downturn within sight’

London, August 3, 2009

The deterioration of the euro zone's factory sector looked closer to ending in July, a survey suggested on Monday, with modest output growth in three of the bloc's biggest economies, Germany, France and Spain. 

Markit said its revised July euro zone factory Purchasing Managers' Index (PMI) rose to 46.3 from 42.6. That was the second-biggest monthly rise in the 12-year series history as the euro area economy claws its way out of the worst recession since World War II.

The PMI was revised up slightly from the flash reading of 46.0 published a little over a week ago, and getting ever closer to the 50.0 mark that divides growth and contraction. It is up significantly from the record low of 33.5 struck in February.

The figures will encourage those who have placed aggressive bets on a euro zone recovery, sending European stock prices up more than 40 per cent since a low carved in early March. But the figures do not suggest the sector is headed for robust growth.

"The improvement in the PMI was driven by a near-stabilisation of manufacturing production," Markit said in a release. Markit polls around 3,000 manufacturing companies each month across the 16-member bloc that hold the euro.

The PMI for Germany, the euro zone's largest economy and where many of Europe's best-known manufacturing companies are based, rose by the biggest amount in that survey's history, showing the first month of production growth in a year.

Prospects for the euro zone in coming months also remained upbeat and suggest the worst of the recession is now well over.

The euro zone manufacturing new orders index, a good forward-looking indicator for future production, was revised up to 49.8 from 49.3 and well above the 44.9 recorded for June.

The report also noted the first rise in demand for consumer goods since May 2008, which led to a rapid narrowing in the rate of decline in production of these goods.

Markit said that euro zone manufacturers extended a rapid inventory decline which, with new orders barely falling, left the orders to inventory ratio at a 2-1/2 year high.

That suggested higher production ahead as companies are forced to re-stock their warehouses.

But not all European manufacturers are sounding upbeat on the outlook.

The chief executive of Siemens, the industrial conglomerate seen as a bellwether of Germany's economy, said on Thursday that the company was preparing for a long period of slow growth in developed markets.

French industrial gases group Air Liquide also said on Thursday it would be prudent for the remainder of this year and next because the economic downturn was still biting.

"The crisis is still there, the average level of production is more or less the same," said its chairman and chief executive officer Benoit Potier.

Employment in euro zone manufacturing companies deteriorated at a rapid pace in July, although slower than in June, according to the Markit data.

Official statistics on Friday showed joblessness rose to a 10-year high of 9.4 per cent in June, but well below forecasts. – Reuters




Tags: London | PMI | Euro Zone factory | Markit |

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