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Euro zone manufacturing grows for first time in 2 years

Thursday, 1 Aug 2013 | 6:03 AM ET
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Euro zone manufacturing activity grew for the first time in two years in July, figures released on Thursday showed.

The purchasing manager's index (PMI) rose to 50.3 in July, up from 48.8 in June and above a flash estimate of 50.1. Any figures above the 50-mark divides expanding activity from contraction.

The data marks the first growth in manufacturing activity in two years, suggesting that the region's economy is improving.

It follows a rise in euro zone economic sentiment in July and a very slight improvement in the region's jobless rate, which fell by 24,000 to 19.26 million in June, although the overall unemployment rate remained unchanged at 12.1 percent.

The latest data will prompt hopes that the euro zone could eke out some GDP growth, Howard Archer, chief U.K. and European economist at IHS Global Insight, said.

"The hope for manufacturers is that current rising confidence in most euro zone countries increasingly encourages businesses to invest more, and also encourages consumers to lift their spending," he told CNBC on Thursday.

"Even so, conditions remain far from easy for euro zone manufacturers with domestic demand still constrained by strong headwinds in a number of countries, Archer added.

Germany recorded the strongest output growth out of the 17 euro zone members in July and production increased further in Italy, the Netherlands and Ireland and returned to growth in France and Austria. Although activity was still contracting in Greece, it did so at a slower rate in July, the data from Markit showed.

Rob Dobson, senior economist at Markit in a statement said the PMI data also showed that job losses in the manufacturing sector had decreased in July. "The bugbear of euro zone manufacturing remains its lackluster labor market [but] even here there were tentative signs of recovery, with the rate of manufacturing job losses easing to a one-and-a-half year low."

Despite the positive data, it was "very unlikely" that the European Central Bank would hike rates when it announces its latest monetary policy decision, Chris Scicluna from Daiwa Capital Markets, told CNBC.

"They've only just set out on their new policy of forward guidance and they last said that rates would stay as they are for an extended period of time so I think it's highly unlikely that we'll see them shift from that today," he said. "It would be very odd for them to change course."

"Things are taking a turn for the better in the euro zone but the pace of the recovery is likely to be limited," he added.

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