Rising demand drove up September euro zone factory activity - PMI

By Jonathan Cable

LONDON (Reuters) - Manufacturing activity in the euro zone picked up last month as demand increased from both within and outside the currency bloc, driving factories to increase headcount, a survey showed on Monday.

However, the upturn remained uneven and was centred on Germany and its neighbours. Growth was far weaker than earlier in the year in Spain, Italy and Ireland, while manufacturing in France continued to decline.

Markit's Manufacturing Purchasing Managers' Index for the bloc rose to 52.6 in September from 51.7 in August, unchanged from a flash estimate. An index measuring output also held above the 50 mark separating growth from contraction, coming in at 53.8, above August's 53.3.

"The big picture is that there have been some modest improvements in the manufacturing outlook recently. But the big question is still what is going on in the service sector," said Ben May at Oxford Economics.

Growth in the bloc's dominant service sector was probably at its weakest since late 2014, a sister survey due on Wednesday is expected to show.

Still, a sub-index measuring new factory orders jumped to 53.4 from August's 18-month low of 51.4, registering one of its highest readings in the past year, and factories also accelerated hiring.

"For a region beleaguered by still-high overall unemployment, the fact that the upturn is generating more jobs is especially good news. The latest rise in factory payroll numbers was one of the best seen over the past four years," said Chris Williamson, chief business economist at IHS Markit.

Likely providing some good news for policymakers at the European Central Bank, the manufacturing upturn came despite firms only trimming prices by the smallest of margins.

Years of ultra-loose monetary policy have so far failed to get inflation anywhere near the ECB's 2 percent target ceiling, so any sign of the policy having an effect will be welcomed. Consumer prices grew 0.4 percent in September, official data showed on Friday.

Euro zone economies stuck in low gear need fiscal policy help rather than even more aggressive monetary policy easing, according to a majority of economists polled by Reuters last month.

(Editing by Ruth Pitchford)