More signs of euro-area shrinkage, US economic revival

In a further sign that Europe’s economy is edging ever closer towards recession, the euro-area’s manufacturing and services sectors shank during August for the seventh month in a row.

The Markit composite Purchasing Managers Index (PMI), based on a survey of purchasing managers, notched up to 46.6 from 46.5 in July. Readings below 50 of the index indicate contraction.

Economists polled by a Bloom­berg News survey had forecasted no change on the prior month.

Meanwhile, in a sign that Europe’s largest economy is outperforming its euro area peers, data published by the Federal Statistics Office shows that German exports rose 2.5 per cent in the second quarter of this year when compared with the first quarter.

Private consumption also rose by 0.4 per cent.

The office also confirmed an initial estimate that German GDP growth slowed to 0.3 per cent in the second quarter from 0.5 per cent in the first three months of the year. A separate report showed that the German budget surplus in the first half of the year amounted to €8.3 billion. This is equivalent to 0.6 per cent of GDP.

Finally, evidence of economic revival in the world’s largest economy was supported by the US Conference Board’s gauge of the outlook for the next six months, which rose by 0.4 per cent in July, after a 0.4 per cent drop in June. According to a Bloomberg News survey, economists were predicting the gauge to climb by 0.2 per cent.

Later in the week, the minutes of the rate-setting Federal Open Market Committee meeting held on July 31 and August 1 show that Federal Reserve policymakers are prepared to boost record stimulus unless there is clear evidence that the economy is poised to improve.

The question is whether the recent signs of strength are enough to satisfy the committee.

This article was compiled by Bank of Valletta for general information purposes only.