By Simone Meier and Gabi Thesing March 24 (Bloomberg) -- Europe’s services and manufacturing industries grew at the fastest pace since 2007 and German business confidence jumped as the economy rebounded from a fourth-quarter relapse. A composite index based on a survey of euro-area purchasing managers in both industries rose to 55.5 in March from 53.7 in February, London-based Markit Economics said today. That’s the highest since August 2007. The Ifo institute’s business climate index for Europe’s largest economy jumped more than economists projected to 98.1 from 95.2. The gauge measuring executive’s expectations soared to the highest since June 2007. The euro-region recovery is gathering strength after coming to a near-halt in the fourth quarter as manufacturers boost production to meet reviving export orders. Greece’s fiscal crisis has contributed to the euro’s 11 percent drop against the dollar in the past four months, making euro-area goods more competitive. Rising unemployment and increasing energy costs may keep a lid on consumer demand in Europe. “It’s a great set of numbers and shows Europe is very aggressively participating in the global recovery,” said James Nixon, co-chief European economist at Societe Generale SA in London. Still, “consumption very much lags what’s happening in the industrial sector.” Nixon expects the 16-nation currency bloc to expand 0.2 percent in the first quarter and 0.4 percent between April and June. Warmer Weather In Germany, warmer weather has paved the way for a resumption of consumer spending and construction, which were hampered by the coldest winter in 14 years. Germany’s services industry index rose to 54.7 from 51.9, signaling “that the recovery in Germany is broadening, although exports will remain the main driver,” said Carsten Brzeski, an economist at ING Group in Brussels. Asian economies are leading a global recovery from the worst slump since World War II. The economy of the “world’s most dynamic region” including China will expand around 8.5 percent in 2010, IMF First Deputy Managing Director John Lipsky said on March 22. That’s more than twice the Washington-based fund’s projected pace for the worldwide economy. Lanxess AG, Germany’s largest publicly traded specialty- chemicals maker, said on March 17 that the Asia-Pacific region is expected to show the most “significant” improvement this year, helping offset a European slowdown. Bayerische Motoren Werke AG, the world’s biggest maker of luxury vehicles, the same day forecast 2010 deliveries will rise with sales in China projected to show a “strong double-digit” percentage gain. Export Orders The euro’s drop against the dollar is bolstering export orders by making European products more competitive abroad. It traded at $1.3361 at 11:07 a.m. in London, down from $1.5134 on Nov. 25. The currency has been pushed lower partly on concern that the Greek government won’t be able to reduce the region’s largest budget deficit. European governments are facing the dilemma of cutting deficits while seeking to bolster recoveries. European investor confidence rose this month, while economic sentiment unexpectedly fell in February. Euro-region unemployment has risen to 9.9 percent, the highest in more than 11 years. European Union Economic and Monetary Affairs Commissioner Olli Rehn said on March 19 that while the “worst is over,” the recovery is “still not self-sustaining and employment has not yet turned for the better.” European Central Bank council member Ewald Nowotny said earlier this month that euro-region growth rates are “positive but weak.” Consumer Spending HeidelbergCement AG, the world’s third-largest cement maker, said on March 18 that January and February were “weak” and that prices will remain little changed this year. Munich- based Siemens AG, Europe’s biggest engineering company, said the same day that it plans to cut an additional 4,200 jobs. With some of Europe’s largest companies eliminating jobs, households may remain reluctant to step up spending, leaving expansion dependent on export demand. Stalling consumer spending was among the reasons the euro region’s recovery came close to stagnating in the fourth quarter. The ECB said on March 4 that it will continue to withdraw some stimulus measures introduced to fight the crisis while keeping its main lending rate at a record low of 1 percent. The Frankfurt-based central bank forecasts the euro-area economy will expand around 0.8 percent this year and about 1.5 percent in 2011 after shrinking 4.1 percent in 2009. Markit is scheduled to release a final figure for its purchasing managers’ index for the European manufacturing and service industries next month. To contact the reporters on this story: Simone Meier in Dublin at smeier@bloombert.net; Gabi Thesing in London at gthesing@bloombeg.net.

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