Eurozone recession will end this quarter as business return to growth

The eurozone’s recession could end in the third quarter, according to analysts, after official data showed that the region’s businesses had returned to growth for the first time in 18 months.

The Markit eurozone Composite Purchasing Managers Index (PMI) – a combination of the services and manufacturing sectors – recorded growth of 50.5 in July, up from an initial estimate of 50.4 and above the 50 mark which signals the difference between contraction and growth.

For Europe, the strong figures offer a glimmer of hope that the six consecutive quarters of economic contraction may be coming to an end. The sentiment survey of thousands of purchasing managers is widely seen as a reliable gauge of economic expansion.

“The final output index reading of 50.5 confirms a welcome return to growth for the eurozone economy at the start of the third quarter, raising hopes that the region can finally claw its way out of its longest-running recession,” said Rob Dobson, senior economist at Markit.

“Granted, the euro area has experienced false dawns before but the improvements in confidence and other forward-looking indicators warrant at least some optimism for the outlook this time around.”

Jonathan Loynes, chief European economist at Capital Economics, said: “July’s final PMI surveys improved the chances that the eurozone is about to move out of recession.”

The 17-nation bloc’s services sector rose to 49.8, up from an initial estimate of 49.6, while manufacturing surprised with a strong 50.3-point performance, pushing the combined measure into positive territory, reports The Telegraph.

Job losses were the weakest in 16 months, as rates of decline eased in France, Italy and Spain, while Germany saw a modest return to job creation.

The good came on a day that saw a glut of worldwide data on the services sector. In the US, the Institute for Supply Management’s July non-manufacturing index – comparable to services PMI readings – came in at 56, above expectations of 53 and ahead of the previous month’s 52.2. Business activity, which includes current sales, rose to 60.4, the highest since December, driven in part by faster home construction. A gauge of new orders increased to five-month high of 57.7.

Meanwhile, China’s services sector recorded 51.3 in July, unchanged from June and just above a 20-month low of 51.1 hit in April.

Hongbin Qu, chief China economist at HSBC, warned that the services sector had stabilised at a low level: “Without a sustained improvement of demand, services growth is likely to remain lacklustre, putting downside pressures to employment growth.”

Elsewhere, India registered a contraction in its services industry for the first time since October of 2011. It shrank with a reading of 47.9, hit by a decline in new orders, amid reports of an increasingly fragile economy.

There was further downbeat news from Japan, where the services sector grew at the slowest pace for nine months, falling to 50.6 in July, from 52.1 the previous month.