The euro zone manufacturing sector expanded for the first time in 17 months during October as new orders reached a level not seen in over two years, a key survey showed on Monday.
The Markit Eurozone Manufacturing Purchasing Managers Index for October rose to 50.7 in October from 49.3 in September. That is in line with an earlier flash estimate and economists' forecasts, and caused little reaction in the market.
This is the first time the reading has been above the 50.0 mark that divides growth from contraction since May 2008 and its highest level since April 2008 when it also stood at 50.7.
"Today's data suggest that the recovery in the euro area is starting to gather pace ... We remain cautious about the economic outlook in the months ahead," said Colin Ellis at Daiwa Securities.
The new orders index rose to a 26-month high of 53.7, up from September's 52.5 while output reached a level not seen since the beginning of last year.
But there was a divergence among the big four nations with Germany and France growing at reasonable levels while Spain and Italy continued to see weakness.
Earlier figures showed the German manufacturing sector expanded for the first time in 15 months and the French sector grew at its fastest pace since November 2006 as output soared.
However, in Spain the sector continued to contract, and by more than forecast, while in Italy manufacturing activity edged closer to expansion territory.
The euro zone is expected to have bounced out of recession in the third quarter after contracting by 0.1 per cent in the second quarter and 2.5 per cent in the first quarter, but economists think the growth path will be shallow though steady.
This scenario will give the European Central Bank little reason to raise interest rates from their historic low of 1.0 per cent and it is expected to hold them level until next October at the earliest.
Reuters