European Manufacturing Expands, Services Growth Accelerates
Europe’s manufacturing expanded for the first time in 17 months and services industries grew at a faster pace in October as evidence mounted that the global economy is pulling out of the recession.
An index of manufacturing rose to 50.7 this month from 49.3 in September and a services gauge increased to 52.3 from 50.9, London-based Markit Economics said today. Both indexes topped economist forecasts in separate Bloomberg News surveys, and the factory gauge climbed above 50, which indicates expansion, for the first time since May 2008. German business confidence rose to a 13-month high, a separate report showed.
European companies are stepping up output to meet reviving orders after governments around the world spent $2 trillion in stimulus measures to fight the worst recession in at least six decades. The International Monetary Fund said on Oct. 1 that the global economy will expand at a faster pace than previously expected in 2010. Still, the euro’s ascent against the dollar may curb the recovery in Europe.
“The second half of the year will be relatively strong,” said Juergen Michels, chief euro-area economist at Citigroup in London. “Looking ahead, there are a lot of reasons for momentum to weaken partly because of a stonger euro.”
The world economy will shrink 1.1 percent this year, less than the 1.4 percent projected in July, the Washington-based IMF forecast. In 2010, the economy may expand 3.1 percent instead of a previously projected 2.5 percent, the fund said. In the euro region, the economy probably returned to growth in the third quarter, the European Commission forecast last month.
Composite Index
A composite index of manufacturing and services industries in the euro-area economy rose to 53 from 51.1 in September, Markit said in today’s report. That was the highest since December 2007 and above the 51.6 that economists had projected in a Bloomberg survey.
Adding to signs of global recovery, German business sentiment improved to the highest since September 2008 this month, the Ifo institute in Munich said today, citing a survey of 7,000 executives.
Confidence in the world economy rose for a third straight month in October, a Bloomberg survey of users on six continents showed earlier this month. In the U.S., industrial output increased more than expected in September and China’s manufacturing expanded at the fastest pace in 17 months.
Wolfsburg, Germany-based Volkswagen AG, the biggest overseas carmaker in China, sold 150,000 cars last month, a monthly record, as sales for the first nine months surged 37 percent. Volkswagen is investing 4 billion euros ($6 billion) to expand capacity in China through 2011.
‘Steam Engine’
“China is the steam engine of the world economy,” Volkswagen sales chief Detlef Wittig said in a Sept. 25 interview in Frankfurt. “The lust for mobility there seems almost bottomless. We’re very well positioned there and will keep investing to secure our share of the market.”
Hermes International SCA Chief Executive Officer Patrick Thomas said on Oct. 8 that luxury-goods brand sales are “booming” in China and elsewhere in Asia, while the U.S. market has turned “slightly positive.”
The European Central Bank has cut its key rate to a record low of 1 percent and started buying as much as 60 billion euros of covered bonds to stimulate bank lending and boost investments and consumption. ECB President Jean-Claude Trichet said on Oct. 9 that it is “not the time to exit yet” with the economy expected to show a “rather uneven” recovery.
Annual Gains
The euro has appreciated around 7.5 percent against the dollar over the past five months, bringing annual gains to 6.9 percent. Dublin-based C&C Group Plc, the maker of Magners cider, on Oct. 8 reported a drop in first-half profit and said trading conditions have become “more challenging.”
In the year’s first seven months, euro-area exports to the U.S., the region’s second-largest trading partner, dropped 20 percent from a year earlier, data showed on Oct. 16. Shipments to the U.K. fell 26 percent and exports to China dropped 4 percent in that period.
“Exchange-rate movements make policy makers sweat,” said Marco Annunziata, chief economist at UniCredit Group in London in an e-mailed statement. “The euro is already at historically strong levels and will start hitting the recovery at its most fragile juncture, six to nine months from now.”
Siemens AG, Europe’s largest engineering company, had a “tough” year on slumping orders, Chief Financial Officer Joe Kaeser said on Sept. 29. ArcelorMittal, the world’s largest steelmaker, said on Sept. 16 that markets for metal in the U.S. and Europe won’t “normalize” next year and Chinese growth will slow.
Euro-area unemployment rose to 9.6 percent in August, the highest in more than a decade, and the IMF last week forecast it will reach 11.7 percent next year, higher than in the U.S. or the U.K. While there are “encouraging signs” of a recovery, the world economy remains fragile and labor markets are yet to improve, the Group of Seven ministers and central bankers said on Oct. 3.