LONDON—Euro-zone private sector activity returned to growth in January, an early sign the currency bloc may not face as severe a downturn as previously feared, according to a survey of purchasing managers.
Markit Economics Tuesday said its composite purchasing managers index for the 17-nation currency area rose to 50.4 in January from 48.3 in December, marking its highest level in five months and putting it marginally back above the 50 threshold that separates growth from contraction.
The figures, which show the first growth since August, are a tentative sign the euro zone could even eke out growth in the first quarter of 2012 following an anticipated contraction in the last three months of 2011, Markit's chief economist Chris Williamson said.
"Encouragingly, the headline output index has now risen for three successive months, suggesting that the rate of contraction may have peaked back in October and that a slide back into recession may be avoided," he said.
January's return to expansion was unexpected. But economists said several factors suggest it is premature to say the debt-ridden euro-zone economy will now resume strong growth.
The rise was exclusively thanks to increased business activity in Germany, the region's powerhouse, and to a lesser extent France, its second-biggest economy. Outside those two countries, Markit said, output continued to fall—albeit at the shallowest rate of contraction in four months.
Additionally, weakness in forward-looking indicators, such as new orders, give cause for caution, Mr. Williamson said.
The PMIs showed new business across manufacturing and services fell for the sixth straight month. Official data also released Tuesday by Eurostat, the European Union's official statistics agency, showed industrial new orders fell in November from October and marked their first annual decline for two years. Orders fell 1.3% on the month and were 2.7% lower on the year.
The Markit survey showed companies' concerns about the economic outlook led to the first fall in employment since April 2010, suggesting that recent increases in euro-zone joblessness won't be the last. Eurostat has said unemployment in November hit its highest level since records began in 1995.
Rising joblessness, widespread fears over the economy linked to Europe's debt crisis, and government spending cuts aimed at stemming that crisis have all prompted a slowdown in economic activity in the euro zone. Economists expect official data to show output contracted in the fourth quarter.
ING Bank economists said further government austerity will likely suppress the economy in coming months. "With the fiscal squeeze set to widen and intensify this year, any return to positive growth later this year will likely be slow and gradual—and remains contingent on a successful resolution of the debt crisis," they said.
But the January PMIs are the latest in a recent spell of more upbeat data hinting the downturn may not be quite as bad as feared. German economic confidence improved sharply in January, according to the ZEW institute, while the European Commission said Tuesday that euro-zone consumer confidence as a whole also improved slightly during the month.
Consumer-price inflation slowed in December, giving households some respite from a squeeze on their incomes and allowing the European Central Bank more breathing room to slacken its policy stance if it sees fit in coming months. The central bank cut its key interest rate in November and December, leaving it at an all-time low of 1%, and has given banks big injections of liquidity to shore up the euro-zone's financial sector.
