Europe Services, Manufacturing Contract More Slowly

By Simone Meier

Aug. 5 (Bloomberg) -- Europe’s manufacturing and service industries contracted at a weaker pace in July, adding to signs the worst recession since World War II has bottomed out.

A composite index of both industries rose to 47 from 44.6 in June, Markit Economics said today. The July reading is higher than the initial estimate of 46.8 published on July 24 and the median forecast of 16 economists in a Bloomberg News survey. The index is based on a survey of purchasing managers by Markit and a reading below 50 indicates a contraction.

The recession in the 16-nation euro region is showing signs of weakening, suggesting efforts by the European Central Bank and national governments to fight the slump are gaining traction. Economic confidence rose to the highest since November last month. ECB council member Christian Noyer said on July 23 that a recovery is still “fragile.”

The euro-area economy “could return to modest growth before the end of the year, and conceivably even in the third quarter,” Howard Archer, chief European economist at IHS Global Insight in London, said ahead of today’s report.

An index of services activity in the euro region rose to 45.7 last month from 44.7 in June, the data showed. A manufacturing index rose to 46.3, the highest in 11 months, from 42.6 in June.

‘Modest Recovery’

The euro region will experience a “modest recovery” next year, the International Monetary Fund said in a report last month. The Washington-based lender with 185 member nations sees Europe’s economy shrinking 0.3 percent in 2010 after a 4.8 percent contraction this year.

In the U.S., the world’s largest economy, gross domestic product dropped at a 1 percent annual rate in the second quarter after declining 6.4 percent in the previous three months. U.S. manufacturing also contracted less than forecast in July.

Walldorf, Germany-based SAP AG, the world’s largest maker of business-management software, last month raised its full-year profit forecast. BNP Paribas SA, France’s largest bank, yesterday reported a higher-than-expected second-quarter profit.

“I believe the worst is over,” Hans-Juergen Thaus, co- chief executive officer at Krones AG, a German maker of bottling and packaging equipment, said on July 29. “I’m quite confident on 2010 and we do have the first indications to back that up.”

The ECB tomorrow will probably keep its benchmark interest rate at a record low of 1 percent, a Bloomberg survey shows. The Frankfurt-based central bank has injected billions of euros into markets and last month started buying covered bonds to bolster the economy and revive lending.

To contact the reporters on this story: Simone Meier in Frankfurt at smeier@bloomberg.net