European Manufacturing Contraction Eased in August
The European manufacturing industry’s contraction eased more than initially estimated in August, adding to evidence the region is emerging from the worst recession in six decades.
An index of euro-area manufacturing rose to 48.2 from 46.3 in July, Markit Economics said today. That was the highest in 14 months and exceeded the initial estimate of 47.9 on Aug. 21. The index is based on a survey of purchasing managers by London- based Markit and a reading below 50 indicates a contraction.
The 16-nation economy barely contracted in the second quarter after the European Central Bank injected billions of euros into markets and governments offered sales incentives to bolster consumer spending. European economic confidence increased more than economists projected in August. In China, the world’s third-largest economy, manufacturing expanded at the fastest pace in 16 months in August, data showed today.
Today’s report “reinforces mounting hopes and expectations that the euro zone will see an overall return to growth in the third quarter,” said Howard Archer, chief euro-area economist at IHS Global Insight in London. “For sustained, significant manufacturing growth to occur, there needs to be an extended growth in orders from both domestic and foreign markets and this currently remains far from certain.”
European stocks fell as the data showed euro-area manufacturing continued to contract, while an index of U.K. factory activity unexpectedly declined. The Dow Jones Stoxx 600 Index was down 1.3 percent at 232.92 at 10:35 a.m. in London.
‘Modest Recovery’
The services index rose to 49.5 in August from 45.7 in the previous month and the composite index increased to 50 from 47, initial estimates showed. Markit will release final figures for the services and composite indexes on Sept. 3.
The euro region will experience a “modest recovery” next year, the International Monetary Fund said in a report on July 30. The Washington-based lender with 185 member nations forecasts Europe’s economy will shrink 0.3 percent in 2010 after a 4.8 percent contraction this year.
Adding to signs of recovery, European industrial output rose more than economists forecast in June and investor confidence increased to a 12-month high last month. In Germany, Europe’s largest economy, business confidence increased for a fifth month in August to the highest level in almost a year.
In the U.S., the world’s biggest economy, manufacturing probably expanded in August for the first time in 19 months, according to the median of 74 forecasts in a Bloomberg News survey. The Institute for Supply Management’s factory gauge for last month will be published later today best payday loan. Other U.S. reports may show housing is rebounding.
National Elections
German Chancellor Angela Merkel, who faces national elections this month, is spending about 85 billion euros ($121 billion) in an effort to rekindle economic growth, including a 2,500-euro payment for consumers who scrap an old car and buy a new one. The government program was one of the reasons why the German economy returned to growth in the second quarter.
Volkswagen AG, Europe’s largest carmaker, on Aug. 7 raised its full-year sales forecast after government subsidies helped spur demand for Golf and Polo compact models. Renault SA, France’s second-largest carmaker, said on July 30 that it’s beating targets for costs and inventory cuts. Still, Bayerische Motoren Werke AG Chief Executive Officer Norbert Reithofer said last month that a “lasting” recovery is “not yet in sight” in the luxury-car market.
Unlimited Cash
“The freefall is over, but we must remember the level of economic activity is still below what it was a year ago,” ECB council member Erkki Liikanen said in an interview on Aug. 22. “Everyone remains cautious,” he said.
The Frankfurt-based ECB will probably keep its benchmark rate at 1 percent when council members meet in Frankfurt on Sept. 3. The bank is offering banks unlimited cash for 12 months and in July started buying covered bonds, securities backed by mortgages and public-sector loans, to boost lending.
ECB President Jean-Claude Trichet has said that rising unemployment may hurt a recovery and curb consumer spending. The euro-area jobless rate rose to 9.5 percent in July, the highest in more than 10 years, the European Union’s statistics office in Luxembourg said today.
Fighting unemployment must be “a priority,” ECB council member Ewald Nowotny said yesterday in Alpbach, Austria. While downplaying worries of a “W-shaped recession,” Nowotny said: “What I see is the danger that we’ll have very low rates of positive growth for some time.”
Even with a “slightly more positive” business forecast for the second half, Munich-based BMW faces a “harshly competitive” market, Chief Financial Officer Friedrich Eichiner said on Aug. 4. The largest maker of luxury cars is “bracing for a continuously difficult and volatile environment” for the rest of 2009, he said.