Raise in Industrial Output Signal Hopes for Eurozone Recovery

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The Eurozone which is battling economic recession may finally see a light at the end of a very long tunnel, the euro zone industrial output picked up as manufacturers in Germany and France started to ramp up production to meet stronger demand.

The Markit eurozone purchasing managers index (PMI), which measures business output was 50.4 in July, July’s figure was up from 48.7 in June and marks an 18 month high. Chris Williamson, chief economist at Markit said “The best PMI for one and a half years provides encouraging evidence to suggest that the euro area could pull out of its recession in the third quarter”. He said the revival in the economy was being led by a broad based upturn in manufacturing, and signs of stabilization in the services sector. The survey found that manufacturers reported the largest monthly increase in output since June 2011, and output in the sector grew for the first time since February 2012. Activities in the service sector fell, but the decline was the smallest in 18 months, but the data showed signs of stabilizing after “marked rates of decline” earlier in the year. The Markit data tentatively suggested the eurozone would grow by 0.1 percent in the third quarter of this year. The PMI measure is based on surveys of thousands of companies across the eurozone and is regarded as a reliable indicator of economic growth.

The Eurozone has been going through a terrible period of recession for six consecutive quarters since the economy started to contract in 2011. Most countries of the common currency are in deep debts with soaring unemployment and abysmal standards of living, the countries are surviving on bailout packages of the Troika. Germany, the region’s biggest economy, saw the strongest increase in overall business activity in the last five months and manufacturing output was at its highest level since February 2012. Economists had expected the Euro economy to stagnate further towards the end of second quarter of this year, but Wednesday’s survey data, which showed an increase in the manufacturing output, pointed to a return to growth in July-September period. The survey also pointed out that companies across eurozone would continue to cut staff, but at a lower rate than earlier this year, the encouraging data from the survey would mean the European Central Bank will not cut the benchmark interest rates, already at a record low of 0.5 percent, when it meets next week.

Despite strong manufacturing growth in Germany, France and other countries, the Eurozone still remains vulnerable, with soaring unemployment levels in Greece and Spain. Signs of slowing growth in China, which accounts for 25 percent of European exports, also present a risk for the eurozone. The positive signs of a recovering economy are largely due to the greater emphasis by European leaders on growth over austerity, countries such as Greece, Spain and Portugal adhering to the budget tightening norms imposed by the Troika and the European Central Bank’s pledge to keep interest rates low for an “extended period”.


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