European Manufacturing, Services Industries Expand

By Simone Meier

Sept. 23 (Bloomberg) -- Europe’s manufacturing and service industries expanded for a second month in September, suggesting the euro-region economy is gathering strength.

A composite index of both industries in the 16-nation economy rose to 50.8 from 50.4 in August, Markit Economics said today. A reading above 50 indicates expansion and the gauge had remained below that level for 14 months before topping it in August. Economists had projected the index, which is based on a survey of purchasing managers, would rise to 51.3 in September, according to the median of 14 forecasts in a Bloomberg survey.

The euro-area economy is showing signs of emerging from its worst recession in more than six decades after governments stepped up stimulus measures and the European Central Bank injected billions of euros into markets. While European economic confidence rose to a 10-month high in August, ECB council member Guy Quaden said on Sept. 15 that rising unemployment is a reason to remain “prudent” about the economic outlook.

“We’re above 50 and that’s fantastic,” said Karsten Junius, a senior economist at Dekabank in Frankfurt. “The situation is stabilizing and the economy is recovering at a faster and stronger pace than previously expected. We’ll see a strong rebound in the third quarter.”

The world economy is emerging from its deepest slump since the 1930s following more than $2 trillion of infrastructure projects, tax breaks and government spending. The ECB earlier this month kept its benchmark interest rate at a record low of 1 percent and Governing Council members have since signaled they are in no rush to withdraw stimulus measures anytime soon.

Covered Bonds

The Frankfurt-based central bank has provided banks with unlimited cash over 12 months and purchased covered bonds to encourage lending. ECB Executive Board member Juergen Stark said on Sept. 15 that the bank is “well prepared to phase out” measures when appropriate.

The euro-area economy may expand 0.2 percent in the current quarter and 0.1 percent in the three months through December, the European Commission said on Sept. 14. In the second quarter, the economy contracted just 0.1 percent as Germany and France, the region’s two largest economies, returned to growth.

The euro-area services index rose to 50.6 in September from 49.9 in the previous month, today’s report showed. That was the first time in 16 months that the index has shown expansion in services. While a gauge of manufacturing remained below 50, indicating contraction, it increased to 49 from 48.2, the highest since June 2008.

Industrial Orders

Adding to signs of recovery, European industrial orders increased for a second straight month in July, the European Union’s statistics office in Luxembourg said today. Orders rose 2.6 percent from June, when they increased 4 percent.

Munich-based Bayerische Motoren Werke AG, the world’s largest maker of luxury cars, projects fourth-quarter deliveries will rise, sales chief Ian Robertson said on Sept. 16. Fiat SpA Chairman Luca Cordero de Montezemolo said earlier this month that the “worst is over” for the premium-car market.

European stocks advanced for a second day amid speculation the Group of 20 nations will maintain measures to support the economy even as signs grow that the recovery is accelerating. The Dow Jones Stoxx 600 Index was 0.5 percent higher at 245.50 at 10:35 a.m. in London.

“I’m reasonably optimistic” about the economic outlook, the ECB’s Quaden said earlier this month. “Three reasons to stay prudent” are “the financial sector hasn’t fully stabilized yet in many countries, a very low capacity- utilization rate weighing down on investment and increasing unemployment weighing down on consumption.”

Retail Sales

Europe’s jobless rate rose to 9.5 percent in July, the highest since 1999, as some of the region’s largest companies including Germany’s Siemens AG were forced to eliminate jobs. European retail sales dropped for a 15th month in August, the Bloomberg purchasing managers index showed last month.

Paris-based Club Mediterranee SA, Europe’s largest resort company, said on Sept. 11 that third-quarter sales declined 13 percent. Unilever NV, the world’s second-biggest consumer-goods company, said earlier this month that it will close a production facility in the Czech Republic, resulting in 634 job losses.

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