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Last updated: July 24, 2014 6:18 pm
Fears that the euro area’s lacklustre recovery had stuttered to a complete halt were soothed on Thursday, after a poll tracking economic activity showed conditions improved this month.
A flash estimate of the purchasing managers’ index for the currency bloc reached a three-month high of 54 in July, up from 52.8 in June, and well above the 50 level that marks an expansion in activity.
The latest data will ease concerns about the state of the eurozone economy, with few economists expecting good news in mid August, when the European Commission releases its first assessment of what happened to the bloc’s gross domestic product in the three months to June.
The acceleration in activity came on the back of a stronger performance from the region’s dominant services sector, bolstering hopes that domestic demand is finally picking up.
The sub-index for the services sector hit its highest level for three years, rising to 54.4 from 52.8 in June. A separate official poll published on Wednesday pointed to a much-needed improvement in the French services sector.
Even though there are signs the third quarter began well, many economists, including teams at Royal Bank of Scotland, BNP Paribas and Goldman Sachs, think growth in the second quarter will prove as weak as in the opening three months of the year.
All three banks have downgraded their forecasts to 0.2 per cent in recent weeks. “Growth at this pace is no better than treading water,” said Richard Barwell, senior European economist at RBS.
Their pessimism is down to the poorer performance of the eurozone’s largest economies, with a slowdown in Germany and France expected to have offset improvements in parts of the bloc’s more troubled periphery, most notably Spain.
The Bundesbank, Germany’s central bank, acknowledged this week that the eurozone’s economic powerhouse was unlikely to have grown at all in the second quarter, following a strong start to the year. Conditions in France, the region’s second-largest economy, remain weak despite the latest survey data.
Meanwhile, the performance of bloc’s more distressed periphery continued to strengthen, with activity rising at its fastest pace in seven years.
Manufacturers, which had led the recovery, are now lagging behind their services sector counterparts. Factory activity continued to expand, recording a reading of 51.9, according to the PMI, but this was barely up from June reading of 51.8.
Chris Williamson, chief economist at Markit, which compiles the index, said growth remained too weak for companies to take on workers, suggesting unemployment – which stood at 11.6 per cent in May – would remain in double digits.
Mr Williamson added: “Part of the weakness can be attributed to geopolitical concerns and notably worries about the potential economic impact of the escalating situation in Ukraine. The likelihood is that companies will become increasingly reluctant to commit to making big decisions on purchases, investment and hiring.”
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