Euro zone services and factory output beat forecasts

Euro-area services and factory output increased more than economists forecast in May, adding to signs the currency bloc will emerge from its record-long recession in the second quarter.

A composite index based on a survey of purchasing managers in both industries rose to 47.7 from 46.9 in April, London-based Markit Economics said today. A reading below 50 indicates contraction.

"We see the eurozone being out of recession in the third quarter," said Christian Schulz, senior European economist at Berenberg Bank in London. "We've seen improving confidence since the ECB provided a safety net, and the risk of countries having to leave the euro has decreased. Also austerity is fading."

The 17-country economy's contraction has left the European Central Bank to try to mitigate the damage by cutting interest rates and exploring unconventional ways of channeling money to needy companies, especially in the south.

The ECB this month cut its benchmark rate to a record low of 0.5 per cent.

Today’s PMI data followed a May 16th trade report, which showed euro-area exports rose a seasonally adjusted 2.8 per cent in March and the trade surplus widened to €18.7 billion.

European Union car sales rose in April for the first time since September 2011.

ECB President Mario Draghi said after the bank's May 2nd meeting that "euro-area export growth should benefit from a recovery in global demand and our monetary policy stance should contribute to support domestic demand."

While the Markit report showed an improvement, its composite gauge has been below 50, indicating contraction, for 16 consecutive months. The ECB forecasts the euro-area economy will shrink 0.5 per cent this year, while the European Commission sees a 0.4 per cent contraction.

The new orders services index fell to 45.3 from 46.2, meaning a big upturn in the PMI next month looks unlikely.

Although business expectations for the year ahead hit an 11-month high in April, it plummeted in May to its lowest point since December.

The PMI for the manufacturing sector rose to 47.8 this month from 46.7 in April, while showing new orders and output declined at a slower pace, comfortably beating expectations of 47.0 predicted by economists.

Bloomberg