European Services, Manufacturing Shrank More Slowly in May

By Frances Robinson

May 21 (Bloomberg) -- Europe’s manufacturing and service industries contracted at the slowest pace in eight months in May, adding to evidence that the region’s worst recession since World War II is easing.

A composite index of both industries rose to 43.9 from 41.1 in April. The index is based on a survey of purchasing managers by Markit Economics and a reading below 50 indicates a contraction. Economists forecast an increase to 42.0, according to the median of 13 estimates in a Bloomberg News survey.

Europe’s economy is showing signs it may recover later this year as stimulus packages and interest-rate cuts around the world prop up demand. German investor confidence rose to a three-year high in May and European exports climbed for a second month in March.

The report “fuels hopes that eurozone economic contraction is now slowing substantially,” said Howard Archer, chief European economist at IHS Global Insight in London. “Nevertheless, the economic and financial environment remains very difficult, activity is still clearly contracting, relapses remain highly possible.”

Policy makers are warning against excessive optimism. Bundesbank President Axel Weber said last week it is “not advisable” to assume that recovery is “safely on track.” Federal Reserve policy makers last month said that the global financial system still “vulnerable to further shocks,” minutes of their April 28-29 meeting published yesterday showed.

Markit’s manufacturing index rose to 40.5 this month from 36.7 in April, today’s report showed, while the services index increased to 44.7 from 43.8.

To contact the reporter on this story: Frances Robinson in Frankfurt at frobinson6@bloomberg.net