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Euro Zone's PMI Manufacturing Reaches the Highest in 21 Months, While Rebounding Strongly in the U.K.

Mon, Nov 2 2009, 10:24 GMT
by ecPulse.com analysis team

ecPulse.com

This week, European economies are due to release important economic data showing the status of sectors in the economy. Following the massive contraction witnessed in the first quarter; the euro zone and U.K. managed to show improvement after the stimulus packages introduced by central banks and national governments to revive the economy.

In the euro zone today; PMI manufacturing for October came in line with both previous and forecasted readings of 50.7, the highest in 21 months. Although the reading remained unchanged, it is still above the 50 barrier, reflecting the expansion in the sector. The reading was buoyed by PMI in France and Germany, where they reached 55.6 and 51.0 respectively.

Later on this week, PMI services will be released, which will give a better picture about economic sectors at the beginning of the fourth quarter.

The data may give a clue that the economy will expand in the third quarter due to the improvement signaled in all sectors. It reasonable to say, the ECB is reaping the fruits of the wise monetary interventions undertaken since the beginning of the crisis.

Policy makers at the ECB cut the key interest rate to 1% and started purchasing bonds worth 60 billion euros starting from July 6; to revive the economy and support it with liquidity. Besides, they offered to provide further liquidity for banks at the current benchmark to enhance lending and spending.

Trichet and his team will meet this week to set the interest rate and announce if there are any changes in regards to their stimulus package. Analysts expect the rate to remain unchanged and bonds purchase program as well. Recently, there have been talks concerning withdrawing the stimulus, but it seems that this will not occur soon, at least not before the release of the third quarter data, where positive growth figures are anticipated.

The IMF estimates in September, revealed that the 16-mation economy will shrink 4.2% this year relative to 4.8% contraction in July, then grow 0.3% in 2010; while the ECB expects the economy to expand 0.2% next year, after contracting near 4.1% in the current year.

It is clear that global economies are recovering, seen in the upbeat data recently released showing that the worst is over. In China, the manufacturing sector inclined for the seventh consecutive month. As mentioned by some economists, China is the mirror of the world with its large manufacturing sector.

Moving to the U.K.; PMI manufacturing for the month of October came in at 53.7, higher than the revised 49.9 from 49.5, surpassing the expected reading of 50.0.

After the disappointing GDP figures for the third quarter, the reading gives hope today that there might be amelioration in the fourth quarter. MPC members will meet next Thursday for the rate decision. Expectations are in favor of holding the key rate at 0.5%, while raising the asset purchase facility program to 225 billion pounds to give a boost to the economy.

In September, BoE members agreed to keep the APF program at the current 175 billion pounds, but possibly there will be incline this month since the recession is still dominating the British economy. Unlike the U.S., which emerged out of the recession, while the euro zone is predicted to expand in the third quarter.

The IMF expects the British economy to contract 4.4% this year before growing 0.9% in 2010.

This week, European economies are due to release important economic data showing the status of sectors in the economy. Following the massive contraction witnessed in the first quarter; the euro zone and U.K. managed to show improvement after the stimulus packages introduced by central banks and national governments to revive the economy.

In the euro zone today; PMI manufacturing for October came in line with both previous and forecasted readings of 50.7, the highest in 21 months. Although the reading remained unchanged, it is still above the 50 barrier, reflecting the expansion in the sector. The reading was buoyed by PMI in France and Germany, where they reached 55.6 and 51.0 respectively.

Later on this week, PMI services will be released, which will give a better picture about economic sectors at the beginning of the fourth quarter.

The data may give a clue that the economy will expand in the third quarter due to the improvement signaled in all sectors. It reasonable to say, the ECB is reaping the fruits of the wise monetary interventions undertaken since the beginning of the crisis.

Policy makers at the ECB cut the key interest rate to 1% and started purchasing bonds worth 60 billion euros starting from July 6; to revive the economy and support it with liquidity. Besides, they offered to provide further liquidity for banks at the current benchmark to enhance lending and spending.

Trichet and his team will meet this week to set the interest rate and announce if there are any changes in regards to their stimulus package. Analysts expect the rate to remain unchanged and bonds purchase program as well. Recently, there have been talks concerning withdrawing the stimulus, but it seems that this will not occur soon, at least not before the release of the third quarter data, where positive growth figures are anticipated.

The IMF estimates in September, revealed that the 16-mation economy will shrink 4.2% this year relative to 4.8% contraction in July, then grow 0.3% in 2010; while the ECB expects the economy to expand 0.2% next year, after contracting near 4.1% in the current year.

It is clear that global economies are recovering, seen in the upbeat data recently released showing that the worst is over. In China, the manufacturing sector inclined for the seventh consecutive month. As mentioned by some economists, China is the mirror of the world with its large manufacturing sector.

Moving to the U.K.; PMI manufacturing for the month of October came in at 53.7, higher than the revised 49.9 from 49.5, surpassing the expected reading of 50.0.

After the disappointing GDP figures for the third quarter, the reading gives hope today that there might be amelioration in the fourth quarter. MPC members will meet next Thursday for the rate decision. Expectations are in favor of holding the key rate at 0.5%, while raising the asset purchase facility program to 225 billion pounds to give a boost to the economy.

In September, BoE members agreed to keep the APF program at the current 175 billion pounds, but possibly there will be incline this month since the recession is still dominating the British economy. Unlike the U.S., which emerged out of the recession, while the euro zone is predicted to expand in the third quarter.

The IMF expects the British economy to contract 4.4% this year before growing 0.9% in 2010.     

Published on  Mon, Nov 2 2009, 10:27 GMT