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Euro zone sees lower fall than expected

THE 16 countries that use the euro saw activity in services and manufacturing contract far less than expected in July, a closely watched survey showed yesterday, in another sign the European economy may be stabilizing after a steep drop earlier in the year.

Financial information services company Markit said its purchasing managers index - a broad gauge of business activity - for the services sector rose to 45.6 in July from June's 44.7. Economists had expected a more modest increase to 45.

The increase does not mean that the sector is growing yet, just that the recession may be easing - any reading below 50 indicates a contraction but the smaller the difference from 50 the less the contraction.

A similar improving picture emerged in the manufacturing sector, where the PMI rose to 46 from 42.6. The rise was far bigger than anticipated - economists were projecting only a slight rise to around 43.5.

The composite PMI, which incorporates the two, climbed for the fifth month running to a 10-month high of 46.8 in July from 44.4 in June.

Analysts said the latest survey provided further evidence that the euro zone is over the worst of the downturn, but that the 16-country single currency zone was unlikely to start growing as quickly as the United States.

Ben May, European economist at Capital Economics, said the composite index now points to around a 0.3 percent decline in economic output in the third quarter from the previous three-month period.

This is a major improvement on the 2.5 percent drop recorded in the first quarter of the year and expectations for a 1 percent decline for the second.

Over the worst

A closely watched survey into German business sentiment also indicated that the euro zone's largest economy was over the worst. The Ifo institute said its main business climate index improved for the fourth month running to a nine-month high of 87.3 points in July from 85.9 points in June. Again the rise was bigger than anticipated, with economists projecting an increase to 86.5.

Despite the increases in the PMIs and the Ifo, Capital Economics' May cautioned about getting too optimistic as both surveys have recently "over-predicted growth."






 

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