European Manufacturing, Services Expand, PMI Shows

By Emma Ross-Thomas

Oct. 5 (Bloomberg) -- Europe’s manufacturing and services industries expanded more than initially estimated in September, adding to signs the economy is gaining steam after the worst recession in six decades.

A composite index of both industries in the euro-area economy rose to 51.1, up from 50.4 in August and higher than an initial estimate of 50.8, London-based Markit Economics said today in a statement. A reading above 50 indicates expansion and the gauge, which is based on a survey of purchasing managers, had remained below that level for 14 months before topping it in August. Economists had projected the index would rise to 50.9 in September, according to a Bloomberg News survey.

The euro-area economy barely contracted in the second quarter as Germany and France, the region’s largest economies, returned to growth. The economy will grow 0.3 percent in 2010, the International Monetary Fund said on Oct. 1, as it trimmed its estimate for this year’s contraction to 4.2 percent from the 4.8 percent it forecast in July.

While there are “encouraging signs” of a recovery, the world economy remains fragile and labor markets are yet to improve, the Group of Seven ministers and central bankers said in a statement on Oct. 3 after talks in Istanbul. Euro-area unemployment rose to 9.6 percent in August, the highest in more than a decade, and the IMF last week forecast it will reach 11.7 percent next year, higher than in the U.S. or the U.K.

Monetary Policies

“Pressure to cut jobs in the face of weak pricing power remained widespread, with job losses accelerating in Germany, Italy and France,” Chris Williamson, chief economist at Markit, said in a statement. “But we estimate that the monthly rate of job losses is now running at around 100,000, compared to a peak of 367,000 earlier in the year.”

The German economy, Europe’s biggest, probably expanded around 0.75 percent in the third quarter from the previous three-month period, when it grew 0.3 percent, Bundesbank President Axel Weber told reporters in Istanbul on Oct. 3. He said the recovery “continues to rely on support from fiscal and monetary policies, and that shouldn’t be withdrawn too quickly.”

The IMF also said central banks in Europe should keep interest rates low and possibly extend non-standard stimulus measures because the region’s recovery is likely to be “slow and fragile.”

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net