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Euro zone business expands for first time in 18 months: PMI

Workers assemble a new Audi R8 car body in the automotive welding and assembly lines hall of the German car manufacturer's plant in Neckarsu
Workers assemble a new Audi R8 car body in the automotive welding and assembly lines hall of the German car manufacturer's plant in Neckarsu

By Andy Bruce

LONDON (Reuters) - Euro zone business expanded for the first time in 18 months in July, albeit very slightly, according to a survey on Monday that suggested the economy is slowly starting to stabilize.

Markit's Eurozone Composite Purchasing Managers Index (PMI) rose to 50.5 last month from 48.7 in June, breaking above the 50 threshold indicating growth for the first time since January 2012. The headline figure was revised up a tick from a preliminary reading of 50.4.

The survey gauges how thousands of euro zone companies fare every month. Although new orders fell again in July, the rate of decline was the weakest since August 2011.

Overall, the survey suggested the economy is starting to exit recession - even if healthy growth still looks like a distant prospect.

"Granted, the euro area has experienced false dawns before, but the improvements in confidence and other forward-looking indicators warrant at least some optimism for the outlook this time around," said Rob Dobson, senior economist at PMI compiler Markit.

"The real sparks which will hopefully ignite the recovery are the increasing signs of stabilization in domestic markets. This not only aided manufacturers, but also pulled the service sector right back to the cusp of recovery."

German business activity rebounded in July, while the downturns in the euro zone's next three biggest economies - France, Italy and Spain - eased.

The region-wide survey's jobs index rose to 48.6 last month from 47.4, signaling a slowing pace of job cuts.

The euro zone unemployment rate eased to 12.1 percent in June from May's 12.2 percent, although more than 19 million citizens are still out of work, with joblessness endemic in Greece and Spain.

"The labor market remains the main bugbear of the eurozone, as rising joblessness hurts growth and raises political and social tensions. But even here there was some better news, with the rate of job cutting easing to a 16-month low," said Dobson.

The services PMI, which covers firms ranging from banks to hotels, rose to 49.8 from 48.3 in June.

Optimism about the coming year rose to its highest since March last year, as the PMI backed a series of more upbeat sentiment indicators over the last week, among both investors and consumers.

Euro zone consumer morale hit its highest level in almost two years in July, just as economic sentiment hit a 15-month high.

(Editing by Hugh Lawson)

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