European services drive economic recovery

Euro-area services growth accelerated to the fastest in more than two years in September as demand and confidence improved. An index of activity rose to 52.1 from 50.7 in August, London-based Markit Economics said on Monday. A composite gauge of services and manufacturing increased to 52.1 from 51.5. Economists forecast 51.8, based on the median of 25 estimates in a Bloomberg survey. A reading above 50 indicates expansion. In China, factory growth accelerated to the fastest in six months. The economy of the 17-nation region is showing signs of recovery since emerging from its longest ever recession in the second quarter. Growth is being led by Germany, where Angela Merkel won an overwhelming endorsement from voters in an election on Sunday on her handling of the Euro-area crisis.

"The Euro-zone economy has ended the third quarter on an encouraging note," Martin van Vliet, an economist at ING Bank NV in Amsterdam, said in a note to clients. "But a further strong acceleration in the pace of recovery seems unlikely in the near term," he said, citing deleveraging that will curb the pace of domestic demand.

Demand rises
The Euro-region manufacturing index declined to 51.1 this month from 51.4 in August. New orders at factories rose for a third month, Markit said. Within services, demand also rose, while expectations for activity in the next 12 months increased to the highest in 1 1/2 years, according to the report.

"The improvement in demand signaled by the data on new business also led to fewer job losses," Markit said. Payrolls fell the least since January 2012 as services employment stabilised.

The euro was little changed after the survey was released, and was trading at $1.3519 as of 10:09 am London time. The Stoxx Europe 600 Index rose 0.1 per cent.

In Germany, Europe's largest economy, a services measure surged to 54.4 from 52.8, exceeding the median forecast of economists in a Bloomberg survey. A factory gauge fell to 51.3 from 51.8. The French manufacturing index slipped to 49.5 from 49.7, while services strengthened to a 20-month high.

In the German election, Merkel's Christian Democratic bloc took 41.5 per cent of the vote, compared with 25.7 per cent for the Social Democrats of Peer Steinbrueck, according to results from all 299 districts. While that leaves her short of a majority and needing a coalition partner, the result puts her in line for a third term as chancellor.

Economic outlook
Economists in a Bloomberg survey this month forecast that the Euro-region economy will grow 0.2 per cent in both this quarter and the last three months of 2013.

L'Oreal SA, the world's largest cosmetics maker, said in August that first-half earnings rose 7.7 per cent and confirmed its full-year targets on stronger sales in emerging markets.

In China, a manufacturing Purchasing Managers' Index rose to 51.2 in September from 50.1 in August, based on a preliminary reading today from HSBC Holdings Plc and Markit. The reading, which was above the median estimate of economists in a Bloomberg survey, signals that a rebound in the world's second-largest economy is gaining steam.

While the European Central Bank raised its 2013 Euro-zone economic projection this month, it still sees a 0.4 per cent contraction and expects only a "gradual" pickup in activity.

"I'm very, very cautious about the recovery," ECB President Mario Draghi said on September 5 after policy makers kept the key interest rate at a record-low of 0.5 per cent. He reiterated his commitment to keeping rates low for an extended period.

While the recovery remains weak, confidence is improving. Sentiment among households increased to minus 14.9 this month, the highest level since July 2011, from minus 15.6, the European Commission said in a preliminary report on September 20.

A combined measure of executive and consumer sentiment probably rose to the highest in two years, economists said before a report on September 27. That gauge strengthened to 96 from 95.2, according to the median of 26 estimates in a survey.