Euro zone manufacturing activity shrank less than previously thought in August but there were stark differences amongst the bloc's countries with contraction accelerating in Spain and Italy, a survey showed today.
The survey found the euro zone's manufacturing sector as a whole is approaching stabilisation, having contracted for 15 months, and will spur hopes of a return to growth in the economy this quarter.
The Markit Eurozone Manufacturing Purchasing Managers Index for August jumped to 48.2 in August from 46.3 in July, above economists' forecasts and revised up from the 47.9 flash reading, but still well below the 50 mark that divides growth from contraction.
The euro was little moved on the data.
Earlier data showed factory activity in Germany and France, the 16-nation bloc's two biggest economies, both beating expectations.
"Having been laggards during the height of the manufacturing downturn, the big two of France and Germany led the way during the current rebound," Rob Dobson at Markit said.
It was a different story in Spain and Italy where the rates of contraction in the sector accelerated, both coming in below expectations.
Spain said last week its economy had shrunk by a more-than-expected 1.1 per cent last quarter, contrasting sharply with Germany and France which surprised markets with a return to growth in the same period.
Britain's manufacturing sector also dipped unexpectedly in August as employers cut jobs and inventories and the pace of pick-up in new orders slowed.
Figures released earlier showed a similarly mixed bag in Asia, with China seeing activity in its manufacturing sector grow while in India activity expanded at it slowest pace in five months.
Data due out of the United States later today is expected to show its manufacturing sector returned to growth in August.
However, the outlook for the euro zone manufacturing sector looks good with the new orders index, a forward-looking indicator for future production, revised up to 51.1 in August from 49.8 in July, the first time it has been above 50 since March 2008.
The figures will prove happy reading to economists and investors who see a rebound in the euro zone economy - European stock prices have soared more than 50 per cent from March lows as optimism grows in the market.
"The further improvement in the manufacturing purchasing managers' survey in August reinforces mounting hopes and expectations that the euro zone will see an overall return to growth in the third quarter," said Howard Archer at IHS Global Insight.
Meanwhile, economic sentiment in the euro zone improved more than expected in August, adding to signs of an economic recovery, fuelled by more optimism in the service sector, data showed on Friday.
Reuters