Manufacturing, services recoveries in Germany, Italy and Spain offset weakness in France, reports Team IFM
Brussels, June 18: The euro zone is on course to record its best calendar quarter of economic growth in three years in the April-June period this year, according to financial information provider Markit, endorsing a European Commission finding that business confidence was up in the region despite slow pickups in pockets.
The Markit Eurozone Composite Output Index, gauging both manufacturers and service providers, posted 53.5 in May, down only slightly from April’s near-three year high of 54, to signal growth for the 11th month running. Recoveries continued in both segments, Markit said.
Manufacturing continued to lead the upturn in output during May, despite seeing production and new orders expand at the slowest rates in six months. Service sector activity as well as new business rose at the quickest rates since June 2011.
However, the gap between the performances of the two largest economies remained wide in May. Germany continued to report strong output growth, with manufacturers and service providers both benefiting from rising new order inflows.
In contrast, output in France fell back into contraction, reflecting the ongoing weakness of the French domestic market.
Elsewhere among the big-four economies, output rose further in both Italy and Spain. Rates of growth ticked higher in Italy and stayed close to April’s seven-year record in Spain.
Markit’s report was in line with the findings of the European Commission, which said its Economic Sentiments Indicator expanded the maximum – by seven points – in Germany, the euro zone’s largest economy. It followed a recent statement by the country’s Federal Statistical Office that “the German economy is gaining momentum”.
In the euro area, “improved sentiment” was driven by higher confidence among consumers as well as industry and construction managers, while the headline indicator for the EU remained “broadly stable”, the Commission said in a statement.
France was the only major economy among the five biggies to witness sentiments sliding in the 18-nation euro zone, while in the 28-member bigger European Union, the UK stood out with a mellower mood, the Commission’s data showed.
Chris Williamson, chief economist at Markit, noted that despite falling, the euro zone PMI remained “firmly in expansion territory” and was consistent with GDP rising by a reasonable 0.4-5 percent in the second quarter.
“However, although the euro zone is enjoying its best performance for three years, this is an uneven, stuttering and lacklustre recovery,” Williamson said.
“France remains a major drag on the region’s revival, where the survey data suggest the economy has stagnated in the second quarter.”
IMPROVING PROSPECTS
Meanwhile, Markit said, the improving performance of the euro zone economy continued to support job creation in May.
Employment rose for the second month running and, although only modest at manufacturers and service providers alike, the combined increase in payroll numbers was the sharpest since September 2011.
Germany and Spain reported further jobs growth, while Italy saw a slight increase for the first time in three years. France reported further cuts.
“The subdued nature of job creation mainly reflected the fact that, although rising, demand remained weak by the historical standards of the survey,” Markit said. “This led a number of firms to support sales efforts by offering selling price discounts.”
In contrast, input prices rose for the 12th month running, as solid inflation at service providers more than offset a slight reduction in manufacturers’ costs. Output prices fell in France, Italy and Spain, while Germany was the only nation to report an increase.
The rate of decline in France was especially marked and the steepest since July last year.
The euro zone service sector continued to recover at a solid pace in May, with Markit’s Eurozone Services Business Activity Index rising to a near-three year high. Output has now increased for ten months in a row.
Among the nations for which May services data are available, Germany registered the steepest rate of business activity growth, with the rate of increase accelerating to the highest since June 2011. Spain saw the pace of improvement remaining close to April’s seven-year record, while business activity rose only moderately in Italy.
France remained a drag on the performance of the services sector, seeing business activity fall back into contraction following gains in March and April.
New orders at French service providers fell for the second month running, providing further evidence of the ongoing weakness of the French domestic market. In contrast, new business rose in Germany, Italy and Spain, with rates of increase improving in Germany and Italy.
The outlook for the services economy also remained positive in May. Business optimism ticked higher to one of its best levels during the past three years. Confidence rose in France, Italy and Spain, but eased in Germany.
The service sector recovery supported further job creation in May, with employment going up for the second straight month and, although only modest, the pace of increase was the best since September 2011.
Service providers in Germany and Spain reported additions to payroll numbers, in contrast to ongoing cuts in Italy and France, a trend that worried Markit’s economists.
“On one hand, it’s encouraging to see job creation running at the highest rate seen since 2007 in Spain and edging higher for the first time for three years in Italy, accompanying solid job gains in Germany,” said Wlliamson.
“On the other hand, sustained job losses in France represent a major concern about the outlook in the region’s second-largest member state and underscore the uneven nature of the region’s recovery.”
CONFIDENT ZONE
Meanwhile, the European Commission said, “improved sentiment” was driven by higher confidence among consumers as well as industry and construction managers in the euro area. Confidence in services and retail trade remained broadly unchanged compared to April.
Amongst the five largest euro area economies, the ESI or the sentiment index nosed up in Spain (by 0.4 point), Italy (0.5 point), Germany (0.7) and the Netherlands (1.3 points). Only France saw sentiment slightly declining – by 0.4 point.
The moderate increase in industry confidence (0.5) was backed by optimistic production expectations of managers and a brighter appraisal of the current level of overall order books, the statement said.
In the services sector, the broadly flat development in the confidence level (0.3 point) resulted from managers’ more positive appraisal of the past business situation and past demand being partially offset by lower demand expectations.
Consumer confidence also brightened, going up 1.5 points, thanks to an optimistic assessment of all components of the confidence indicator such as the employment scenario, savings, general economic situation and expected financial situation.
Selling price expectations were revised upwards in construction and services, while declining in retail trade. No significant changes were envisaged in industry. “After three decreases in a row, price expectations of consumers rose,” the Commission said.