In sum, the positive performance seen in EMU industrial production, which in April and May was up on the first-quarter average, and the more upbeat economic sentiment had already been flagging a turn for the better. The optimism among purchasing managers in July now reaffirms our view that the eurozone economy is set to recover substantially in the second half of the year.
The German economy looks to have made a good start to the third quarter. At 52.8 points, the composite index points to a strong pickup in growth. Signs of an upswing are evident in both industry as well as the services sector (50.3 and 52.5 points respectively). Both sub-indices reached 5-month highs. At 53.4 points, the index for German industrial production is at its highest level since February 2012. In France, which according to Finance Minister Moscovici already returned to the growth path in the second quarter, the composite index reached its highest level for almost one-and-a-half years at 48.8 points (+1.4 points on June).
The economy in a number of peripheral countries has evidently stabilized of late. In the rest of the eurozone output posted the smallest decline since June 2011. InSpainthe industrial index had already brushed the expansion threshold last month. Job losses in the periphery are likely to have slowed substantially to an extent last seen in September 2011.
Together with business optimism, the recent unexpectedly sharp jump in consumer confidence in July (to the highest level since August 2011) reinforced our view that the eurozone economy will stabilize in the second half of the year. At the same time, the fact that the purchasing managers’ index is hovering around the expansion threshold suggests that strong growth rates in the eurozone will remain elusive. We are penciling in only a moderate pace of growth in the next two quarters.