Euro zone factory PMI points to broad-based economic recovery

Euro zone manufacturing activity accelerated in October as new orders increased for the fourth month in a row.
However strong competition left factories with little room to raise prices, a survey showed today.
Increasingly robust gains in production countries such as Spain, Italy and Ireland mean the bloc’s nascent recovery is becoming more broad-based, survey compiler Markit said.
Markit’s final Manufacturing Purchasing Managers’ Index (PMI) rose to 51.3 from September’s 51.1, in line with an earlier flash reading and with the consensus forecast of economists.
It had hit a 26-month high of 51.4 in August.
An index measuring output, which feeds into a composite PMI reading due on Wednesday and seen as a good indicator of growth, rose to 52.9 from 52.2. A reading above 50 signals an expansion in activity.
“The euro zone manufacturing economy is undergoing its strongest growth period for two-and-a-half years. However, while the recovery goes on, it is by all measures frustratingly slow,” said Chris Williamson, chief economist at Markit.
Healthy growth in Germany, Europe’s biggest economy, pulled the troubled region out of its longest recession in the second quarter, but it will probably only grow 0.2-0.3% each quarter up to the end of next year.
Earlier PMIs from Germany showed activity picked up last month but across the border in France, the euro zone’s second biggest economy, the manufacturing sector remained in contraction.
Demand for manufactured goods increased last month, although not as fast as in September, and factories made little change to prices, despite rising input costs.
The output prices sub-index nudged up to an 18-month high of 50.5 from 50.3 but was down from the 50.7 flash reading.
“Output charges rose for the second successive month, but the rate of inflation remained marginal as competition remained strong and market demand lacklustre,” Markit said.
Euro zone inflation fell to just 0.7% in October, official data showed last week, well short of the European Central Bank’s goal of just under 2%.
While a Reuters poll last week did not predict a cut in interest rates from their record low of 0.5% when it meets this week, Thursday’s inflation data prompted some economists to change their call and expect a cut.

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