At country level, the overall index forGermanypublished today by Markit Economics bounced back from its 5-month low in April, gaining 0.7 points to 49.9, while the French overall index stagnated at 44.3 points. Decling optimism in the French services sector was offset by an increase in the manufacturing sector production index. Overall, therefore, the assessment of French purchasing managers remained above the first quarter average. In the rest of the Eurozone both industry and the service sector surprised on the positive side.
Although business optimism in the eurozone does not reflect the bullish picture on the stock markets, where one record high is chasing the next, the latest survey data do underpin our assessment that, in the second quarter, the eurozone economy could shake off recession after one and a half years. For the months April to June we are penciling in a modest quarter-on-quarter growth rate of 0.2%.
The improvement in sentiment was probably spurred by the ongoing expansionary interest-rate and liquidity policy of the ECB, along with its announcement to explore ways to improve the funding situation of small and medium-sized companies in conjunction with the European Investment Bank (EIB). In addition, after a drawn-out tussle, the eventual formation of a government in the eurozone’s third largest economy,Italy, probably met with relief. Finally, the fact that the EU Commission, under the banner of “pro-growth consolidation”, has been advocating an extension of the deficit targets for the EMU heavyweightsFranceandSpainis also likely to have played a role.
However, not all the “works in progress” in the single currency area have been resolved, such as for instance the wobbly financial situation inSlovenia. It remains to be seen whether hard economic indicators such as April’s industrial production figures also provide evidence of an economic recovery. Despite the recent improvement, the lingering marked gap in the purchasing manager indices from the expansion threshold illustrates that the specter of the sovereign debt crisis is fading only slowly from business people’s minds. The pace of growth in the eurozone economy is not likely to pick up substantially until next year.