Euro zone may yet escape recession as services jump: PMIs

Tue Jan 24, 2012 4:07am EST
 
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By Jonathan Cable

LONDON (Reuters) - The euro zone may yet escape recession thanks to a surprise upturn in the service sector that outweighed the ongoing contraction in manufacturing this month, surveys showed on Tuesday.

Markit's Flash Eurozone Purchasing Managers' Composite Index (PMI), often seen as a growth indicator, jumped to 50.4 from December's 48.3, its highest reading in four months.

That easily beat the highest forecast of 49.5 in a Reuters poll, which gave a median prediction of 48.5.

"The index seems to have bottomed out in October and we've had three months of improvement. Three months we see as a turning point signal, and we are beginning to get a bit more confident," said Chris Williamson, chief economist at data provider Markit.

"So it may not be a recession in the euro zone but a very brief period of decline."

A Reuters poll last week predicted the euro zone would wallow in a mild recession until the second half of this year and shrink in 2012 by around 0.3 percent.

But some of the recent growth was spurred by reducing backlogs of work, with the composite sub-index remaining below 50 at 47.2, albeit up slightly from December's 46.4.

Firms were also forced to cut prices for the second month to drum up business, despite input costs rising.   Continued...

 
<p>Euro coins are seen in this photo illustration taken in Rome, December 9, 2011. REUTERS/Tony Gentile</p>