Euro zone economy shows signs of recovery

The euro zone’s troubled economy looks to have turned a corner, according to a business survey today that showed businesses are more optimistic about the future but highlighted a growing chasm between the region’s economies. At 48.6 in January, from 47.2 in December, the Markit Eurozone PMI ® Composite Output Index rose to a ten-month high and came in above its earlier flash estimate of 48.2. Although signalling a further deterioration in output of the Eurozone private sector economy, the rate of decline has now eased for three straight months.

Both manufacturing production and service sector business activity declined at the slowest rates since last March, with similar modest rates of decline seen in each sector.

Inflows of new orders fell at the slowest pace since last February, dropping at reduced rates in both manufacturing and services. Goods producers continued to see the steeper rate of contraction.

A diverse picture was seen among the four largest euro members, with strong growth in Germany – output grew at the fastest rate for just over a yearand-a-half – contrasting with ongoing downturns in France, Italy and Spain. Output in France fell at the steepest rate of these four countries, registering the fastest monthly decline since March 2009 and causing the gap between the headline indices for France and Germany to increase to the widest in the survey history. The rate of decline also accelerated slightly in Italy, but eased to a 19-month low in Spain.

While Germany saw new orders rise for the first time in 11 months, France, Italy and Spain all saw rates of decline ease.

Nations ranked by all-sector output growth (Jan.)

Ireland 54.9 2-month high

Germany 54.4 19-month high

Spain 46.5 19-month high

Italy 45.4 2-month low

France 42.7 46-month low

Chris Williamson, Chief Economist at Markit said:

“The eurozone is showing clear signs of healing, with the downturn easing sharply in January and the region moving closer to stabilisation in the first quarter.

“Growth is heavily skewed towards Germany, however, where the contrast with the contraction seen in France is the greatest seen since the survey began in 1998. While German companies reported the strongest growth for almost a year-and-a-half, French firms suffered the steepest downturn for nearly four years, with output falling at a much faster rate than in both Spain and Italy.

“More encouragingly, rates of loss of new business eased in France, Italy and Spain, accompanied by a return to growth in Germany, presenting a more consistent picture of demand moving in the right direction across the region.”