By ALEX BRITTAIN CONNECT
The euro zone's return to economic growth is becoming more broad based, starting to include weaker southern parts of the currency area and spilling over into neighboring countries in central and Eastern Europe, according to a survey of purchasing managers at manufacturing companies.
Signs of growth in the factory sector of the euro zone's weaker members suggests the 17-nation economy could pick up further in the third quarter, following a return to growth in the second quarter that was driven almost entirely by the two biggest economies, Germany and France.
In August, factory-activity growth resumed after more than two years of decline in Spain, and picked up in Italy and Ireland, as well as in Germany, the Netherlands and Austria. Activity in crisis-hit Greece shrank, but at the slowest rate in more than three years, while French factory activity ebbed.
The performances helped the euro-zone manufacturing sector to grow at the fastest rate in over two years, said data provider Markit in its monthly report Monday. The purchasing managers' index for manufacturing rose to 51.4 in August from 50.3 in July, further above the 50 index threshold that indicates month-to-month growth, Markit said.
"Manufacturing in the euro area continued to show signs of recovery in August," said Chris Williamson, chief economist at Markit. "Policy makers will be reassured by the data, which add to growing signs of a building recovery for the euro-zone economy."
But the currency bloc's prospects for growth remain slight. Governments are set to continue with austerity policies to slow their accumulation of debt and consumers and businesses are wary of spending freely, with unemployment near euro-era highs and cheap business loans hard to come by.
Because of such issues, emergent signs of growth in the euro-zone economy are unlikely to result in tighter monetary policy from the European Central Bank, at least in the near term. The policy makers at the bank are expected to keep the main interest rate at 0.5%, a record low, at their meeting Thursday. ECB President Mario Draghi has indicated the council expects to keep policy at such loose levels—or even slacken it further—for an extended period.
While still modest, Monday's data suggest the economic pickup is at least spreading outside the euro zone's strongest nations, and into some of the currency bloc's neighbors in central and Eastern Europe.
Activity among manufacturers in the Czech Republic and Poland grew in August at the fastest rate in over two years, with rapid increases in new orders suggesting growth in future months, Markit said. Turkish factories returned to growth in August after activity shrank in July.
Unbalanced growth within the euro zone, concentrated in Germany and other "core" nations that have come through the debt crisis relatively unscathed, has been a persistent problem for the bloc and complicated the ECB's job in setting one policy rate for all nations.
The PMI figure for the euro zone of 51.4 marked a slight upward revision from Markit's preliminary estimate of 51.3, published last month.
