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MENAFN - AFP - 24/01/2013

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(MENAFN - AFP) Private business activity across the eurozone rose to a 10-month high in January, a leading indicator showed on Thursday, but the currency bloc still hasn't returned to growth as France's downturn steepened.

The Purchasing Managers' Index published by London-based Markit researchers, a survey of thousands of eurozone companies, logged 48.2 points in January compared to 47.2 points the previous month.

January marked a third rise running for the index, even though it remains below the 50-point line indicating economic growth or contraction -- a 16th reading of less than 50 in 17 months.

Manufacturing production fell for the 11th month in a row, with both the manufacturing and services sectors each registering their smallest retreat in 10 months.

The key eurozone economy of Germany powered back to growth, but No. 2 economy France is still in contraction.

Markit Chief Economist Chris Williamson said the trends within the eurozone were "worryingly divergent," with Germany's "strengthening upturn" compared to the "steepest downturn since early-2009" for France "creating tensions for policymakers."

Williamson said forward-looking indicators "suggest that the rate of decline will continue to slow in the coming months, and a return to growth looks to be on the cards during the first half of 2013."

However, he also underlined that "worrying signs of weakness persist, however, with companies cutting staff at a faster rate, reflecting the need to keep costs as low as possible in the face of ongoing uncertainty about the economic outlook."

"While the surveys add to the mounting evidence that eurozone economic activity turned the corner in late-2012, they indicate that it is not out of the woods yet," said London-based IHS Global Insight analyst Howard Archer, who highlighted worries about France.

Jonathan Loynes of Capital Economics also in London said the improvement on the consensus forecast among economists -- of 47.4 points -- is nonetheless "consistent with quarterly contractions in eurozone GDP of about 0.2 percent, compared to a likely drop of perhaps 0.5 percent in the fourth quarter last year."

He added that it would be "premature to conclude that a sustained recovery is now underway. For now, at least, the indices are still consistent with recession."

Stocks rose slightly and the euro nudged higher, largely based on the news, with Jane Foley, senior currency strategist at Rabobank, saying: "The fact that this PMI data was better than expected has been sufficient to give risk appetite another fillip.

"However, these data continue to point to further contraction across both manufacturing and services sectors," she added.

Christian Schulz of Germany's Berenberg Bank said the "safety net" announced by the European Central Bank last year for governments toiling to borrow at affordable rates "is progressively affecting the real economy and healing the transmission of monetary policy."

He added: "This buys the crisis countries the time to see through the tough structural reforms and fiscal tightening and eventually reap the rewards. The ECB's own pessimistic growth forecast look likely to be exceeded."


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