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European Manufacturing Maintains Progress in the New Year

Mon, Feb 1 2010, 10:37 GMT
by ecPulse.com analysis team

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The ongoing improvement witnessed in European economies in the last quarter of 2009; where the manufacturing sector continued its expansion at the beginning of the New Year, shown by the data released today.

In the euro area, PMI manufacturing final reading for the month of January rose to 52.4 from 51.6 in December. The reading was boosted by expansion in the largest economies in the euro region.

German manufacturing inclined to 53.7 in January from 52.7 in December; French manufacturing edged up to 55.4 from 54.7. In Italy, the reading pushed up to 51.7 from 50.8.

Although the readings came better than market estimates, the pace of incline is lower than the one seen in the last three months. Analysts are expecting recovery to be slow this year, where the real recovery is expected to take place in 2011.

In January's bulletin; the governing council predicted the euro area to expand 0.8% in 2010 and 1.2% in 2011. ECB members project the 16-nation region to grow at a moderate pace this year, recognizing that the recovery process is likely to be patchy and that the outlook remains uncertain.

This week, PMI services will be released which may give a whole picture about the status of the largest sectors in the economy in the first month of 2010. If the advancement continued, this may induce the ECB to withdraw stimulus and hike interest rate faster than expected.

Trichet and his economic team left the interest rate unchanged at 1% in January and they will meet this week to set the interest rate for February. Expectations are referring to holding the borrowing cost at its low rate to give an impetus to growth, before unwinding stimulus measures in the second half of the current year.

In the U.K., the progress continued also as PMI manufacturing for January improved to 56.7 from 54.6 a month earlier. The British economy is completing its successful journey towards recovery, ahead of the release PMI services later on this week.

Britain emerged from recession in the fourth quarter as revealed by GDP advanced reading for the fourth quarter, which showed an expansion of 0.1% from the previous contraction of 0.2%. Economists, however, expected the economy to grow more in the fourth quarter after the impressive data recorded during this period.

BoE policy makers will also meet this week to set the interest rate and APF quantity for February after; holding both steady in January at 0.5% and 200 billion pounds.

Probably MPC members do not think to raise the APF program more than the current 200 billion pounds that will end on February 4th, after they left the recession and are showing strong recovery signs. Nevertheless, bank's estimates of growth and inflation will be released this month, which will mainly detect the bank's policy in the coming period.

The economy is expected to expand 2.2% in 2010 and 4.1% in 2011, according to policy makers’ projections announced in November. Perhaps the coming period needs wise interventions from the BoE, as King and his team has to tame the skyrocketing budget deficit and inflation as well as spurring growth that is still fragile.

Published on  Mon, Feb 1 2010, 10:39 GMT

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