Turning point or false hope: what next for Europe?

Alessia Pierdomenico | Bloomberg via Getty Images

Workers assemble Aventador automobiles on the production line at the Lamborghini factory near Bologna, Italy.

The news that euro zone business activity expanded for the first time in 18 months in July has reinvigorated the question that analysts love to debate: is the European economy finally on the up?

Euro zone PMI (Purchasing Managers' Index) data out on Monday suggested the area's economy is slowly stabilizing. Markit's euro zone composite PMI rose to 50.5 in July, from 48.7 in June. This was the first time since January 2012 that the PMI had risen above the 50-mark, and was aided by better numbers from peripheral nations such as Spain and Italy.

Spain's service sector still shrunk in July, but at its slowest rate since 2011, increasing to 48.5 in July, from 47.8 in June. Activity in Italy's service sector hit a two-year high of 48.7, far stronger than June's 45.8 reading. Elsewhere, France's service sector posted its best reading in 11 months, while the U.K.'s PMI came in at 60.2, its strongest level since December 2006.

(Read More: Euro zone business expands for first time in 18 months)

Better data from the peripheral countries is something Ishaq Siddiqi, a market strategist at ETX Capital, focused on when he argued that Monday's PMI numbers were a "definite turning point".

"We're starting to see a better growth picture coming out from the peripheral nations," Siddiqi told CNBC.

"Previously it was the core nations that were posting the growth. Now we're starting to see a different picture, where the peripheral is starting to come to the forefront and the core is showing more of a mixed signal - we saw that German PMI was a little bit weaker."

(Read more: What recession? Brits are feeling more confident)

However, Ben May, European economist at Capital Economics, said that rather than marking a turning point, the PMI data was "reasonably encouraging".

"We have seen false storms in the past with these figures, so I'm not sure you'd necessarily want to conclude that these numbers are just going to continue on their upward trend indefinitely," May told CNBC.

May said that particularly with regards to Spain, talk of a recovery was misplaced.

"In terms of Spain, I think the important thing to remember is that the index is still below 50, so in that sense - at face value - it's still consistent with contraction in activity. So at the moment, I think the PMI data is only really consistent with the economy contracting less sharply, than being the start of an outright recovery."

(Read more: Brighter euro zone data offers scope for ECB rate cut)

Nonetheless, Credit Suisse analysts argued in a research note out last Friday that the euro zone was at the start of a recovery. "It appears to be common to the weaker periphery as well as the stronger core. The improvement has been consistent across a range of economies and indicators," they said.

Credit Suisse added that the economic improvement was not reliant on ex-European stimulus. "This recovery appears to be been driven by better fundamentals from within the euro area, rather than a response to stimulus from elsewhere in the global economy. Much like the recession that preceded it, the recovery is made in Europe," the analysts said.

Siddiqi did not agree."The euro zone is massively dependent on stimulus from the Federal Reserve, because the Fed's not just pumping money into the U.S. economy, their stimulus provides liquidity around the world," he said. Siddiqi warned that the Fed tapering off its massive stimulus program could yet weigh on a European recovery.

One area of consensus was austerity, with both Credit Suisse and May agreeing that fiscal tightening was hampering Europe's short-term progress.

May said that while fiscal consolidation would help the long-term outlook, in the near-term, it was a drag on euro zone economies.

"Is austerity leading to these economies being fundamentally much healthier?" he asked. "Taking on structural reforms, those reforms are welcome, but whether they are going to have any significant impact on the potential growth rate of the economy is clearly highly uncertain."

Siddiqi summarized his views by breaking down the levels of progress across the globe. "We've got a recovery in the U.S.; we've got good signs of recovery in the U.K.; and when it comes to the euro zone, it's a very nascent recovery. The crisis may not be over yet, but the recession may be coming to an end."