German Services, French Industry Unexpectedly Grow
German services and French manufacturing unexpectedly expanded in August, signaling a pick- up in domestic demand in Europe’s largest economies is helping lift the region out of the worst recession in six decades.
An index of the German services industry rose to 54.1 this month from 48.1 in July, Markit Economics said today, citing its purchasing managers’ survey. The French manufacturing index increased to 50.2 in August from 48.1 in the prior month. A reading above 50 indicates expansion. Economists forecast both indexes would remain below 50, the median estimates in Bloomberg surveys showed. A composite index of both industries for the 16 nations sharing the euro increased to 50 from 47 in July.
“The recession is over,” said Klaus Baader, chief European economist at Societe Generale SA in London, who forecasts the euro area will grow at least 0.3 percent in the current quarter. “Today’s incredible reading in Germany shows that the domestic economy is improving beyond just the car sector, and France’s economy is also progressing.”
With today’s data adding to evidence the euro region will emerge from the deepest slump since World War II sooner than previously forecast, economists say the European Central Bank may start to raise interest rates as soon as next year. Economists from Deutsche Bank AG, UBS Ltd. and Bank of America- Merrill Lynch in the past two weeks brought forward their projections for an ECB rate increase to 2010 from 2011.
Key Rate
The Frankfurt-based ECB on Aug. 6 kept its key rate at a record low and said the region’s economy is past the worst. The German and French economies unexpectedly returned to growth in the second quarter, reports showed last week.
German Chancellor Angela Merkel, who faces national elections next month, is spending about 85 billion euros ($122 billion) in an effort to rekindle economic growth, including a 2,500-euro payment for consumers who scrap an old car and buy a new one. New vehicle registrations in Germany rose 22.8 percent in the first five months of 2009 from the year-earlier period.
In Germany, Europe’s largest economy, “business sentiment among service providers strengthened in August and was the most positive since January 2006,” Markit said in today’s report. In France, “manufacturers noted a solid gain in new orders, with sales to both domestic and foreign clients increasing,” according to Markit.
Weekly Gain
The euro rose as high as $1.4338 after the reports were released and is heading for a second weekly gain against the dollar on signs the global recession is abating. European stocks advanced for a second day, with the Dow Jones Stoxx 600 Index up 1.2 percent at 232.47 at 12:30 p.m. in London.
“The recovery has started,” International Monetary Fund Chief Economist Olivier Blanchard said in a paper on the global economy published on Aug. 18. The Washington-based fund, which has rescued economies from Pakistan to Iceland in the past year, last month forecast the world economy will expand 2 free credit report without a credit card.5 percent in 2010 instead of a previously projected 1.9 percent.
Today’s report is the latest to suggest that Europe’s economy is about to emerge from the recession. Economic confidence rose to an eight-month high in July and investors this month were the most optimistic in a year. The euro-area economy shrank 0.1 percent in the second quarter from the previous three months, when it contracted a record 2.5 percent.
“The third quarter will be very good,” said Pierre- Olivier Beffy, chief economist at Exane BNP Paribas in Paris. “The impact of the stimulus plans has been underestimated, especially in the car sector,” he said.
‘Signs Are Positive’
“It doesn’t mean that the fourth quarter will necessarily be as strong, but for now the signs are positive,” Beffy said.
Paris-based L’Oreal SA, the world’s largest cosmetics maker, is “confident” its performance will keep improving through 2009 after reporting a gain in second-quarter sales, Chief Executive Officer Jean-Paul Agon said on July 30. Deutsche Bank AG, Germany’s largest bank, reported a 68 percent jump in second-quarter net income.
The ECB earlier this month kept its benchmark rate at 1 percent with President Jean-Claude Trichet saying he anticipates a “gradual recovery” in 2010 followed by a return to growth. 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.
“Sooner or later it must come,” ECB Executive Board member Lorenzo Bini Smaghi said yesterday at an event in Cortina, Italy, adding that the bank expects recovery around mid-2010. “Next year, inflation will be very moderate.”
Cutting Jobs
With some of the region’s largest companies cutting jobs to shore up earnings, consumers may keep a rein on spending. Munich-based Siemens AG, Europe’s largest engineering company, said on July 22 that it will eliminate more jobs on top of previously announced 17,000 reductions.
“Rising job losses and the continued need for widespread and deep price discounting remain concerns looking ahead as a sustained recovery in demand is necessary if the emerging rebound is to gain traction,” Markit said in today’s report.
“We are bracing for a continuously difficult and volatile environment” for the rest of 2009, Friedrich Eichiner, chief financial officer at Bayerische Motoren Werke AG, said on Aug. 4. Even with “slightly more positive” business projected for the second half, the world’s largest maker of luxury cars will face a “harshly competitive” market, he said.
Filed under: news by Wolf