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Euro zone services, factory, composite PMIs all beat forecasts
Services new business index at seven month high
Manufacturing employment index at five month high
Composite input prices index rises, highest since January
The euro zone's services and manufacturing sectors contracted less than expected in May as firms saw the pace of decline in new orders ease, hinting the worst of a deep recession may be over, surveys showed on Thursday.
Markit's Eurozone Flash Services Purchasing Managers Index (PMI) rose to 44.7 in May from 43.8 last month, beating the consensus estimate of 44.5. That was the third month in a row it has picked up and took it to its highest level since October. The survey, covering everything from banks to hotels, showed activity was still considerably below the 50.0 mark that divides growth from contraction, and comes on the heels of other improving sentiment data from across Europe. The Flash Manufacturing PMI rose to a seven-month high of 40.5 from 36.8 in April, far outstripping the consensus of 38.4. The combined rises took the Composite index to an eight month high of 43.9 from 41.1 in April and beating the median forecast of 42.3.
"We have clear signals that the worst of the recession is probably over, but the figures also suggest that the recession will not end any time soon," said Juergen Michels at Citi.
"For the second quarter we will probably see a decline in GDP of around 0.6 to 0.7 percent," he added.
Data released on Friday showed the euro zone's economy shrank a record 2.5 percent quarter-on-quarter in the first three months of the year, coming on the back of a 1.6 percent quarterly contraction at the end of 2008.
The euro extended earlier gains against the dollar.
Business expectations in the euro zone's service sector rose to a 13-month high while the new business index rose to just 41.9 from 40.2, showing order levels are still declining, albeit at a slower pace.
"There is a broad based improvement in confidence and that is based on the stimulus packages and low interest rates," said Chris Williamson, chief economist at survey compiler Markit.
The European Central Bank has slashed interest rates to just 1.0 percent and announced plans to buy up to 60 billion euros of covered bonds. Most economists say the worst has passed and see the economy growing later this year. [ECILT/EU]
GERMANY, FRANCE An upturn was expected in the euro zone's two biggest economies as service sector activity in Germany contracted at its slowest pace since December while in France the PMI climbed to an eight month high of 47.6.
"They are going in the right direction. The rebound is rather more than we anticipated, certainly if you look at the French and German numbers," said Peter Dixon at Commerzbank.
Morale in Germany, the 16-nation bloc's largest economy, hit a three-year high this month, according to the monthly ZEW poll on economic sentiment, while other recent sentiment indicators have also suggested the economy has bottomed out.
However, the ZEW current conditions index for Germany fell to its weakest level in six years, the business expectations index in the country's PMI survey moved over 50.0 for the first time in over a year, recording a level not seen since May 2007. Euro zone manufacturers' stocks of finished goods sank to a new low, despite a slowdown in the decline of both new domestic and export orders, as firms ran down existing products.
However, employment levels in the manufacturing sector continued to decline, although at a slower pace, with the index rising to a five-month high of 37.8 from 34.6 as firms slashed more jobs in a bid to cut costs.
Unemployment in the euro zone reached 8.9 percent in March and German commercial vehicle maker Daimler said earlier this month it plans to cut 2,300 jobs.
Inflationary pressures eased further but the input prices index moved to a five-month high of 42.5 from last month's 40.6. Euro zone inflation was just 0.6 percent in April, considerably below the European Central Bank's two percent target ceiling.
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