Growth returns to the eurozone, latest PMIs show

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Manufacturing in the embattled eurozone grew for the first time in two years during July, according to data from analyst Markit.

The final Markit Eurozone Manufacturing Purchasing Managers’ Index hit 50.3 points in July, up from 48.8 in June and above the neutral 50 mark for the first time since July 2011. The figure was also above the earlier flash estimate of 50.1.

Production and new orders both increased at the fastest rates for some two years, as new export business expanded and a number of domestic markets moved closer to stabilisation

PMIs rose in all nations except Spain but Ireland’s manufacturing signalled growth for the second straight month in July. Figures for Germany, Italy and the Netherlands all edged back into expansion territory.

Markit senior economist Rob Dobson says: “Eurozone manufacturing made a positive start to the third quarter, with welcome signs of growth returning to the sector. This hopefully places the sector nicely to provide a positive spur to the third quarter GDP numbers and help the euro area exit recession.”

Notably, the European Central Bank today kept interest rates at their historic low of 0.5 per cent and president Mario Draghi reiterated that he expects them to remain at their current level for the foreseeable future.

Elsewhere after adjusting for seasonal factors, the HSBC Chinese Manufacturing PMI posted an 11 month low of 47.7 in July, down from 48.2 in June and signalling a deterioration of business conditions for the third consecutive month.

Production levels at Chinese manufacturers declined for the second month in a row in July. The rate of contraction quickened slightly, but remained modest overall. 

But the UK enjoyed far more positive numbers where manufacturing activity rose for fourth month running in July and at the fastest rate since February 2011. The seasonally adjusted Markit/CIPS Purchasing rose to 54.6 in July, up from a revised reading of 52.9 in June.

The UK PMI has remained above the neutral 50 mark since April, with its level improving in each of the past five months.

IHS Global Insight chief UK and European economist Howard Archer says: “This is a hugely encouraging survey, indicating that the manufacturing sector has kicked off the third quarter well and is set to make an increased contribution to GDP growth.

”This supports hopes that the UK economy is on course for further appreciable expansion in the third quarter after GDP growth doubled to 0.6 per cent quarter-on-quarter in the second quarter from 0.3 per cent in the first.”

Ian Kernohan, Economist at RLAM adds: “PMIs are the most watched of all the monthly business surveys, as they tend to give an early indication of trends in GDP.

”The latest manufacturing PMI suggests that the UK economy has retained good momentum going into the third quarter. Markets are unsure how the MPC will react to the data though, given the degree of uncertainty surrounding the new Carney led regime at the Bank of England.”