Eurozone recession may be near end

Audi cars parked outside the company's HQ in Germany London- Arab Today The eurozone may be on the road out of recession, business data showed on Wednesday but more evidence is needed to say if Europe will soon cease to be a drag on the global economy. A key survey of business activity switched back into growth in July for the first time for 18 months. Market chief economist Chris Williamson said: "The best PMI reading for one-and-a-half years provides encouraging evidence to suggest that the euro area could -- at long last -- pull out of its recession in the third quarter." Recession in the eurozone is widely regarded as a main drag on global economic momentum. This has been underlined recently by the big economies in the Group of 20, the Organisation for Economic Cooperation and Development and the International Monetary Fund. The latest survey of sentiment among purchasing managers, the people responsible for buying materials and products for businesses, is a leading indicator. The latest findings contrast with consumer gloom, largely a result of record high eurozone unemployment which is a lagging indicator of how the economy performed in past months. The Markit Eurozone Composite Purchasing Managers Index logged 50.4 points, above the 50-mark signalling growth, and a bigger-than-expected rise according to analysts after posting 48.7 points in June. The survey, which had given negative readings since February 2012, is closely watched as a reliable pointer to the trend of business activity. Economists said cautiously that findings for July could be a sign that recession was on the wane. The outcome, the fourth monthly rise in a row overall, was also marked by a two-year high logged in the manufacturing sector, which recorded 50.1 points, up from 48.8. The rate of job losses eased, Markit said, while the feedback from star economy Germany showed that rising output there was at a five-month high level. But the French economy, the second-biggest in the eurozone, still showed contraction although at a slower pace, giving a reading of 48.8, up from 47.4 in June. Taken together, the data provides a "summer filip to policymakers," Williamson said, given political or financial turmoil in Italy, Cyprus, Greece and Portugal. Williamson said that although manufacturing had led the revival, there were also "promising signs of stabilisation in the service sector, which hints at some much-needed upturns in domestic demand." The services sector gave a survey reading of 49.6 points, up from 48.3. Record eurozone unemployment is tipped to reach 12.3 percent at the end of 2014 by the Organisation for Economic Cooperation and Development, with under-25s the hardest hit. Williamson said that although jobs were still being lost, there was also "welcome news in that companies are cutting back on headcounts to a lesser extent than earlier in the year." While cautioning that there have been "false dawns" before, Ben May of London-based Capital Economics said the eurozone economy appeared to be "on the mend and might perhaps soon exit recession." Moving beyond stabilisation, though, will still take time, stressed Christian Schulz of Berenberg Bank. "While services were particularly strong in Germany, with its low unemployment rate and no austerity, budget cuts and high unemployment still weigh on private consumption and government investment in the southern European reform countries," he said. "Yet these countries are beginning to see their reforms paying off," he underlined, maintaining that "the fading risk of another eruption of the eurozone crisis is stabilising confidence." Schulz added that the key factor was the intervention by European Central Bank head Mario Draghi one year ago, its pledge of a practically unlimited safety net for governments under threat on bond markets having "proven its resilience repeatedly." But at Morgan Stanley bank, Elga Bartsch commented: "Today's report is consistent with a stabilising, rather than an expanding economy in early quarter three." A separate ECB survey of banks, meanwhile, showed that credit conditions in the euro area are continuing to tighten, but are likely to do so a slower rate in the coming months. Source: Roddy Thomson (AFP)