Surveys show pace of euro zone recovery moderating

By Andy Bruce and Jonathan Cable

LONDON (BestGrowthStock) – The euro zone’s economic recovery moderated only slightly in August and companies are more optimistic about the coming months despite a divergence in growth rates between countries, a survey showed on Monday.

The Eurozone Flash Composite Purchasing Managers’ Index (PMI), which gauges activity in thousands of services and manufacturing companies, fell in August to 56.1 from 56.7 in July, a slightly bigger fall than expected.

But it remained well above the 50 mark that divides growth from contraction and survey compiler Markit said that was consistent with quarterly growth of 0.7 percent, only just down on the three-year high of 1.0 percent in the second quarter.

The numbers showed Europe’s recovery for now is holding up better than that in the United States, and suggested a slowdown — expected on the back of swingeing budget cuts and slacker global demand — may take longer to arrive.

“The euro zone’s economic recovery is slowing down, but so far retains significant forward momentum. That is the message,” said Martin van Vliet of ING Financial Markets.

“All in all, the manufacturing-led decline in the August composite PMI confirms that the euro zone is far from immune to the U.S.-led slowdown in global growth momentum. But for the time being the index still points to decent growth.”

The recovery of the U.S. economy slowed markedly in the second quarter and economists polled by Reuters expect the euro zone to follow suit in the quarters ahead, even if the odds of a double-dip recession appear to be receding.

The French government on Friday cut its 2011 growth outlook to 2 percent, bringing it closer to that of private sector economists, days after Moody’s credit ratings agency warned France and other top “AAA”-rated countries were inching closer to losing this rating.

The euro dipped slightly against the dollar after the release of the PMIs, and at 1017 GMT was trading at $1.2696, not far off Friday’s five-week low of $1.2664 after Weber’s comments. Stocks were unmoved.


The report, however, added to signs of worrying divergence between the robust expansion in France and Germany, and stagnation elsewhere in the euro zone.

German service sector growth improved in August to its fastest pace in three years, while it faltered among its export-reliant manufacturers. In France, the situation was reversed.

“Outside of those two main nations conditions are still subdued,” said Rob Dobson of survey compiler Markit.

“We are seeing this very much centered on the core nations, it has not spread to the peripheral nations and in many ways this divergence is widening.”

European Central Bank Governing Council member Axel Weber on Friday was quoted as saying unlimited lending to banks should continue past the end of the year, a key part of emergency measures to keep credit flowing in the economy.

Traders say many Spanish and Irish banks are still locked out of interbank lending, meaning ECB support remains vital.

Earlier this month, official statistics showed the Spanish economy grew an anemic 0.2 percent in the second quarter compared to the first, hurt by rampant unemployment, while growth in Italy was not much better at 0.4 percent.

That compared with explosive quarter-on-quarter growth of 2.2 percent in Germany. But there are signs of slowing growth among companies there — two weeks ago, Europe’s biggest carmaker Volkswagen (VOWG_p.DE: ) warned business was becoming “difficult,” while Ford (F.N: ) saw falling European sales.

In the United States, which entered and exited its Great Recession before its European peers, the portents for growth look generally grim.

On Thursday, data showed U.S. jobless claims hit a nine-month high the previous week and factory activity in the U.S. Mid-Atlantic region unexpectedly contracted in August — the first time in a year.

(Additional reporting by Daniel Flynn in Paris and Krista Hughes in Frankfurt)

Surveys show pace of euro zone recovery moderating