European Manufacturing Expands, Services Accelerate
Europe’s manufacturing expanded for the first time in 17 months and services industries grew at a faster pace in October as evidence mounted that the global economy is pulling out of the recession.
An index of manufacturing increased to 50.7 from 49.3 in September and a services gauge rose to 52.3 from 50.9, London- based Markit Economics said today. Both indexes topped economist forecasts, and the factory gauge climbed above 50, indicating expansion, for the first time since May 2008. German business confidence rose to a 13-month high, a separate report showed.
European companies are stepping up output to meet reviving orders after governments around the world spent $2 trillion in stimulus measures to fight the worst recession in six decades. The International Monetary Fund said on Oct. 1 that the global economy will expand at a faster pace than previously expected in 2010. The euro’s strength may curb the recovery in Europe.
“The second half of the year will be relatively strong,” said Juergen Michels, chief euro-area economist at Citigroup in London. “Looking ahead, there are a lot of reasons for momentum to weaken partly because of a stonger euro.”
The world economy will shrink 1.1 percent this year, less than the 1.4 percent projected in July, the Washington-based IMF forecast. In 2010, the economy may expand 3.1 percent instead of a previously projected 2.5 percent, the fund said. In the euro region, the economy probably returned to growth in the third quarter, the European Commission forecast last month.
Services Industries
A composite index of manufacturing and services industries in the euro-area economy rose to 53 from 51.1 in September, Markit said in today’s report. That was the highest since December 2007 and above the 51.6 that economists had projected in a Bloomberg survey.
Manufacturing in Germany, Europe’s largest economy, expanded in October for the first time in 15 months, Markit said. German business sentiment improved to the highest since September 2008, the Ifo institute in Munich said today in a separate report, citing a survey of 7,000 executives.
Adding to signs of global recovery, confidence in the world economy rose for a third straight month in October, a Bloomberg survey of users on six continents showed earlier this month. In the U.S., industrial output increased more than expected in September and China’s manufacturing expanded at the fastest pace in 17 months.
Monthly Record
Wolfsburg, Germany-based Volkswagen AG, the biggest overseas carmaker in China, sold 150,000 cars in September, a monthly record, as sales for the first nine months surged 37 percent. Hermes International SCA Chief Executive Officer Patrick Thomas said on Oct. 8 that luxury-goods brand sales are “booming” in China and elsewhere in Asia, while the U.S. market has turned “slightly positive.”
Data across Europe today showed some economies are recovering better than others. While French consumer spending rose in September for the first time in three months, the U.K. economy unexpectedly contracted 0.4 percent in the third quarter, separate reports showed.
The European Central Bank has cut its key rate to a record low of 1 percent and started buying as much as 60 billion euros of covered bonds to stimulate bank lending and boost investments and consumption. ECB President Jean-Claude Trichet said on Oct. 9 that it is “not the time to exit yet” with the economy expected to show a “rather uneven” recovery.
Seven Months
The euro has appreciated 18 percent against the dollar since February to a 14-month high above $1.50, making the region’s goods less competitive abroad. In the year’s first seven months, euro-area exports to the U.S., the region’s second-largest trading partner, dropped 20 percent from a year earlier, data showed on Oct. 16. Shipments to the U.K. fell 26 percent and exports to China dropped 4 percent in that period.
“Exchange-rate movements make policy makers sweat,” Marco Annunziata, chief economist at UniCredit Group in London, said in an e-mailed statement. “The euro is already at historically strong levels and will start hitting the recovery at its most fragile juncture, six to nine months from now.”
Siemens AG, Europe’s largest engineering company, has had a “tough” year on slumping orders, Chief Financial Officer Joe Kaeser said last month. ArcelorMittal, the world’s largest steelmaker, said markets for metal in the U.S. and Europe won’t “normalize” next year and Chinese growth will slow.
Euro-area unemployment rose to 9.6 percent in August, the highest in more than a decade, and the IMF last week forecast it will reach 11.7 percent next year, higher than in the U.S. or the U.K. While there are “encouraging signs” of a recovery, the world economy remains fragile and labor markets are yet to improve, the Group of Seven ministers and central bankers said on Oct. 3.