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European Economy on Slow Path to Recovery

August 23, 2013

The European economy finally seems to be on the road to recovery. In figures released by the European Commission, GDP in the second quarter rose by 0.3 percent in the Eurozone—a small but positive indicator of growth.

The growth was led by Germany and France where GDP improved by 0.7 percent and 0.5 percent, respectively. Positive signs are also seen in countries in southern Europe that are most deeply entrenched in recession. Decline is slowing in Italy, Greece and Spain. Portugal pulled out of its downward trend and posted a 1.1 percent improvement in its GDP.

Thursday’s release of the Markit Flash Eurozone PMI showed the largest monthly increase in business activity for August recorded in two years. The Composite PM rose for the fifth consecutive month to 51.7 from 50.5 in July.

New orders were up slightly indicating the first improvement in demand for goods and services since July 2011. Orders for manufactured goods were up along with export sales. Employment declines slowed in August.

Input costs rose due to higher oil and fuel prices while output prices fell due to discounting by companies to boost sales.

“The euro area’s economic recovery gained momentum in August, with manufacturing and service sector companies reporting the strongest pace of expansion for just over two years,” said Chris Williamson, Chief Economist at Markit. “So far, the third quarter is shaping up to be the best that the euro area has seen in terms of business growth since the spring of 2011. The economic picture from the surveys is therefore coming into line with policymakers‟ expectations of a modest yet still fragile return to growth.”