Europe produced a raft of survey reports on Friday that suggested the worst of the recession may have passed by mid-year and that industrial output is starting to stabilise, albeit on government life-support.
News that British economic output dropped twice as hard as forecast in the second quarter of the year — gross domestic product fell 0.8 percent from the first quarter — served a reminder of how fragile things are, however. [ID:nLO44167]
Britain was the first major country in the region to publish GDP data for the period and, even if the fall paled next to the first-quarter drop of 2.4 percent, it prompted some economists to question how fast things will normalise there.
"These are awful, awful numbers," Ross Walker, an economist at RBS Financial Markets, said. "It casts doubt on whether we will actually see growth in Q3 (British GDP)."
The news was more encouraging from mainland Europe's top two economies, Germany and France, and the 16-country euro area as a whole, with surveys of private-sector business showing continued but far less severe shrinkage than previously. [ID:nLO728431]
Research firm Markit's monthly surveys of the manufacturing and service sectors showed forecast-beating improvements and in Germany's case the so-called PMI indices produced from those surveys are now not far off levels that would mark expansion.
Markit's Flash Services Purchasing Managers Index (PMI) for the euro zone, based on surveys of around 2,000 firms, climbed in July to its highest level since last October, at 45.6 versus 44.7 in June.
In manufacturing, where the first signs of a expected to show when companies rebuild warehouse stocks they have been running down since the end of 2008, the index also rose to a forecast-topping 11-month high of 46.0, from 42.6 in June.
Daiwa economist Colin Ellis said it might take just a month or two for the composite PMI index, a combiner of manufacturing and service sector indices which rose to 46.8 in July, to show the economy back in expansion territory.
GERMAN SPARKLE
Country-specific indices showed Germany shifted even closer to the watershed 50-mark, above which PMI surveys spell growth rather than shrinkage — with July readings of 48.4 in services, 45.2 in manufacturing, and a composite index of 48.9.
Germany's separate Ifo index of business sentiment added to the brighter picture, rising for the fourth straight month to its highest since last October, again outstripping forecasts. [ID:nLO386633]
European stock markets <.FTEU3> have risen 40 percent from a March 9 trough and reversed early intra-day losses on Friday as the latest positive news emerged from the region. <.EU>
UBS economist Martin Lueck said Europe's largest and largely export-driven economy could expect a "rather solid recovery" in the second half of 2009, notably because there were signs too that world trade had already hit bottom.
Government stimulus packages in industrialised economies and emerging economies such as China were increasingly having a positive effect on new orders, said Lueck.
Much of the initial stages of any rebound from the worst downturn since World War Two are likely to be driven by a rebuilding of corporate inventories, economist say.
A PMI-based ratio which reflects firms' ability to meet new orders from inventories hit its highest since March 2007 in July, suggesting that inventory bounce is more likely than ever.
Second-quarter GDP readouts are due for much of continental Europe in mid-August and are expected to prove less dire than a first-quarter 2.5 percent drop in the euro zone. [ID:nLAG003598]
Data last week showed euro zone industry output rose in May for the first time since August 2008.
The reports out of Germany were perhaps most impressive but France produced its share of good news too this week, even if its composite PMI index dipped to 47.2 from 47.8 in June. [ID:nLAG003606]
France's statistics office on Friday reported a decline in consumer confidence in July but a separate report earlier this week showed actual spending by consumers on manufactured goods rose strongly, by 1.4 percent over June.
Another survey by the INSEE statistics office showed business confidence about future prospects improved more than expected in July because firms in many sectors believe that inventories have hit rock bottom.
