German economic recovery powers ahead - Service sector helps boost eurozone PMI

German economic recovery powers ahead - Service sector helps boost eurozone PMI
By Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2009
Published: August 21 2009 10:12 | Last updated: August 21 2009 10:12
http://www.ft.com/cms/s/0/ab84cf5a-8e2d-11de-87d0-00144feabdc0.html


Germany’s economic recovery has leapt into a higher gear, according to a closely watched survey that showed private sector activity expanding this month at the fastest rate for 15 months and lifting the overall eurozone economy’s performance.

The purchasing managers’ index for Europe’s largest economy jumped to 54.2 in August, from 49.0 in July, signalling an unexpectedly brisk pace of expansion. The growth was driven by the service sector, where employment actually rose, but manufacturing also showed a further rebound.

The figures were the latest economic data from continental Europe to surprise on the upside and suggested the region had overtaken the US and UK in the pace of its recovery. France’s economy is also now expanding clearly, according to a separate purchasing managers’ index for the eurozone’s second largest economy.

The euro gained 0.5 per cent on the dollar to $1.43 and 0.2 per cent on the pound to £0.86.

Germany and France last week wrong-footed economists by both reporting a 0.3 per cent rise in gross domestic product in the second quarter, compared with the previous three months – marking the technical end of their recessions.

But continental Europe’s rebound still appears to be being held back by other countries, including Spain and Italy, where GDP continued to fall significantly in the second quarter. The eurozone composite purchasing managers’ index, covering services and manufacturing, rose to exactly 50 in August, from 47.0 in July.

With a 50 marking the boundary between an expansion and contraction in activity, the latest figures point to a broad stabilisation after the worst recession in continental Europe since the second world war. But in recent months, the purchasing managers’ indices appeared to have underestimated the pace of the recovery in France and Germany, which could mean that overall growth was also expanding at the eurozone level during the last three-month period.

The latest improvement “positions the eurozone to post growth in GDP in the third quarter”, said Rob Dobson, senior economist at Markit, which produces the survey.

Germany’s rebound appears to have been powered by the country’s pioneering “cash-for-clunkers” incentives for new cars purchases and a pick-up in global demand for its exports. Earlier this week, the Bundesbank reported that consumer spending was likely to have risen further in the second quarter and described German shoppers as “remarkable in continuing to defy the negative effects of the global economic and financial crisis”.

The Bundesbank argued that a “further marked pick-up in overall economic output is possible in the third quarter”.

However, Axel Weber, Bundesbank president, has sought to rein in expectations, warning in a German newspaper interview this week that “the economy is not yet standing on its own feet, and the financial markets are still reliant on central bank help”. Other European Central Bank policymakers have also warned that a self-sustaining recovery may take longer to emerge – which also suggested the ECB will be in no rush to reverse the exceptional steps it took to combat the eurozone’s recession.

Mr Dobson at Markit added: “Rising job losses and the continued need for widespread and deep price discounting remain concerns.”