European Manufacturing, Services End 14 Months of Contraction

By Simone Meier

Sept. 3 (Bloomberg) -- Europe’s manufacturing and service industries ended the longest streak of contraction on record in August, suggesting the region’s economy is gaining strength.

A composite index of both industries rose to 50.4 in August from 47 the previous month, Markit Economics said today. That’s above an initial estimate of 50 published on Aug. 21. The index, which is based on a survey of purchasing managers, was below 50, indicating a contraction, for 14 months.

The euro-area economy may emerge from its worst recession in over six decades this quarter after governments stepped up stimulus programs and the European Central Bank injected billions of euros into markets. While the economy barely contracted in the second quarter, rising unemployment and the ending of government stimulus measures mean the recovery may take time to gain traction.

“Some of the impact of the fiscal stimulus will fade before the end of the year,” Nick Kounis, chief European economist at Fortis Bank Nederland NV in Amsterdam said before the data were published. “This is likely to pull the economy down temporarily in the fourth quarter after what is likely to be a relatively healthy third quarter. However, the big picture should be one of an ongoing gradual recovery.”

The services index rose to 49.9 in August from 45.7 in the previous month, today’s report showed. A gauge of manufacturing increased to 48.2 from 46.3 in July, the highest reading since June 2008.

Rising Confidence

The International Monetary Fund plans to raise its global growth forecast for 2010 to “just below” 3 percent from 2.5 percent, division chief Jorg Decressin said on Sept. 1. The Washington-based lender with 185 member nations will publish its revised forecasts on Oct. 1.

In Europe, consumer spending rose for the first time in more than a year in the second quarter and exports fell at a slower pace, helping to ease the recession. European confidence in the economic outlook rose for a fifth month in August and investors were the most optimistic in a year.

Vivendi SA, owner of the world’s largest music company, Universal Music Group, on Sept. 1 reported a gain in second- quarter earnings. Volkswagen AG, Europe’s largest carmaker, on Aug. 7 raised its full-year sales forecast.

The ECB today may keep its benchmark interest rate at a record low of 1 percent, according to a Bloomberg survey. The Frankfurt-based central bank has offered banks unlimited cash over 12 months and in July started buying covered bonds to bolster the economy and revive lending.

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