European Services, Manufacturing Contraction Slows
Europe’s manufacturing and service industries contracted at the slowest pace in six months in April, signaling the worst of the recession may be over.
A composite index of activity in both industries posted its biggest gain on record, rising to 40.5 from 38.3 in March. The index is based on a survey of purchasing managers by Markit Economics and a reading below 50 indicates contraction. Economists forecast an increase to 38.9, according to the median of nine estimates in a Bloomberg News survey.
Europe is mired in its deepest recession since World War II as the global financial crisis derails purchases of cars and machinery, forcing companies to scale back output and fire workers. Industrial production in Europe contracted by the most on record in February and unemployment rose to the highest in almost three years.
“The economic slump is only slowing down a little bit and growth won’t resume before the fourth quarter,” said Ralph Solveen, head of economic research at Commerzbank AG in Frankfurt. “However, leading indicators may bottom out now.”
The manufacturing index rose to 36.7 from 33.9 in March, while the services index increased to 43.1 from 40.9, Markit said. A composite index measuring new orders showed the weakest contraction in six months. The euro rose almost half a cent to $1.3066 after the report was published.
‘Encouraging Start’
“This represents an encouraging start to the second quarter and suggests a return to stability in the euro area by the end of the year is possible,” said Chris Williamson, chief economist at Markit payday loans. “However, the ongoing severity of the situation should not be underestimated: the latest numbers are still consistent with a double-digit annual rate of decline of manufacturing output.”
European industrial orders fell 34.3 percent in February from a year earlier, the most in at least 13 years, the European Union’s statistics office in Luxembourg said today.
The International Monetary Fund predicts the euro-region economy will contract 4.2 percent this year, the most since World War II.
“Even once the crisis is over, there will be a difficult transition period, with output growth appreciably below rates seen in the recent past,” the Washington-based fund said yesterday in its semi-annual World Economic Outlook.
The economic slump has prompted the European Central Bank to embark on the most aggressive series of interest-rate cuts in its 10-year history. It has lowered the benchmark rate by 300 basis points since early October to 1.25 percent, a record low.