Eurozone business activity picks up in August: PMI survey

(BRUSSELS) - Private sector economic activity in the 16 nation eurozone gained ground in August as a key purchasing survey beat initial estimates on Thursday and turned positive for the first time in 15 months.

The closely-watched purchasing managers' index (PMI) for the 16 countries which use the single currency, compiled by data and research group Markit, rose to a revised 50.4 points in August from 47 points in July.

That put it above the emblematic 50-point boom-or-bust line, indicating that business activity returned to growth in the month, likely taking the broader eurozone economy with it.

It also marked the first time that the index, which measures business activity through a survey of some 14,000 companies, was in positive territory since May 2008.

Markit describes the PMI as "designed to provide a snapshot of the health of the economy."

The initial estimate of 50 points was issued on August 21.

"The PMI index suggests that the eurozone may well come out of recession in the third quarter," said economist Rob Dobson of Markit in a statement.

The rebound was led by a first rise for the manufacturing sector in 15 months, the Markit researchers said, with that index rising 1.9 points to 48.2 points, mainly due to increased production and new orders.

In the services sector, the index jumped sharply to 49.9 points up from 45.7 in July.

Markit uses the two indices and other data to compile the final PMI reading.

A resurgence of output in manufacturing and services in Germany, plus manufacturing in France, was cited as the principal driver for the data.

"It was no surprise to see Germany and France leading the charge but the continued weakness of Italy, Spain and Ireland are major concerns and make the rebound heavily reliant on the big two," Dobson noted.

In the second quarter, the German and French economies each grew 0.3 percent while the eurozone as a whole contracted 0.1 percent, compared with the three months to March.

Dobson cautioned that sales were still dependent on heavy price discounting and government stimulus measures, and warned about any hasty removal of these efforts.

"Too rapid a removal of these supports could still halt the recovery, especially if the labour market fails to rebound sufficiently beforehand."

Analyst Clemente De Lucia of BNP-Paribas said the numbers suggested "that the eurozone economy is on the road of stabilisation and the recovery is gaining momentum.

"Nevertheless, doubts remain on the stability of the recovery path," he said, highlighting rising unemployment and weak domestic demand, the prospect of stimulus packages ending and fragile consumer confidence.

Dobson noted also that "setting the appropriate level of monetary stimulus will become increasingly difficult" given national variations in the economic picture across Europe.

The European Central Bank on Thursday left its benchmark interest rate unchanged at a historic low of 1.0 percent, as expected.

Other data for the eurozone highlighted the risks -- retail sales in July, the latest in a downward trend broken only in April this year.

The volume of retail sales in the eurozone dipped 0.2 percent in July over one month and 1.8 percent over one year, but this at least was an improvement on June, the Eurostat data agency said.

In the wider 27-nation EU bloc, retail sales rose 0.3 percent in July.