Business pick-up fuels hopes Europe has turned corner

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BUSINESS activity in the eurozone expanded for the first time in 18 months in July, suggesting the recession in the single currency area may finally be at an end.

German business activity rebounded, while the downturns in the currency zone’s next three biggest economies – France, Italy and Spain – eased.

Markit’s eurozone composite purchasing managers index (PMI) rose to 50.5 last month from 48.7 in June, breaking above the 50 threshold indicating growth for the first time since January 2012.

Economists said yesterday’s data suggests the single currency area is starting to exit recession – even if healthy growth remains a distant prospect.

Rob Dobson, senior economist at Markit, said: “The euro area has experienced false dawns before, but the improvements in confidence and other forward-looking indicators warrant at least some optimism.

“The real sparks which will hopefully ignite the recovery are the increasing signs of stabilisation in domestic markets. This not only aided manufacturers, but also pulled the service sector right back to the cusp of recovery.”

But firms on the continent are still shedding jobs, albeit at a slower rate. Howard Archer, economist at IHS Global Insight, believes the eurozone economy actually stopped contracting in the second quarter of 2013 after a record six quarters of decline, as Germany saw faster growth and the decline in Italy and Spain slowed.

“The hope for the eurozone is that rising confidence encourages businesses to increasingly pare back their job cutting and become more prepared to invest, and also encourages consumers to spend more,” he said.