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Manufacturing improves amid euro zone recovery

Ty Wright | Bloomberg | Getty Images

Manufacturing in the euro zone continued its recovery in October as the region emerges from an 18-month recession, with almost all countries posting growth in the sector.

The Markit Manufacturing Purchasing Managers' Index (PMI) came in at 51.3 in October, slightly higher than the 51.1 recorded the previous month. A reading over 50 marks expansion.

The figure – unchanged from the flash estimate - signals an improvement in manufacturing across the region for the fourth consecutive month. In August, the euro zone's manufacturing PMI hit a 26-month high of 51.4.

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Chris Williamson, Markit's chief economist said the data reveal a "marked turnaround" in the health of the region.

"The euro zone manufacturing economy is undergoing its strongest growth period for two-and-a-half years, since the mounting uncertainty caused by the escalating sovereign debt crisis hit businesses hard in 2011," he said in a statement accompanying the data.

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"More encouraging indications about the recovery can be gained by looking at the increasingly broad-based nature of the upturn, and especially the fact that increasingly robust gains in production are now being seen in countries such as Spain, Italy and Ireland, to suggest that structural reforms to boost competitiveness are starting to pay off."

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The euro zone exited recession in the second quarter - with gross domestic product expanding by 0.3 percent from the first three months of the year. The data signal the end of the longest contraction in continental Europe in over 40 years - but its economic growth is expected to be sluggish at least until 2015.

Howard Archer, chief U.K. and European economist at IHS Global Insight said that despite the marginal improvement in expansion in October, the rate of growth remained modest

"This reinforces suspicion that while the euro zone is likely to keep on growing after finally exiting extended recession in the second quarter, the region still faces a hard slog in developing decent recovery and remains vulnerable to setbacks," he said.

Greece and France were the only countries to record a contraction in manufacturing activity, with October PMIs of 47.3 (a three-month low) and 49.1 (a four-month low) respectively.

Elsewhere, even struggling economies like Spain and Italy posted growth, while Ireland's PMI was the strongest in the region, coming in at 54.9 – a 30-month high.

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But Williamson stressed that the recovery was "frustratingly slow," with modest gains in output and new orders remaining insufficient for businesses to take on more staff. Both output and new orders continued to grow in October, but employment in the sector fell for the 21st month in a row.

The PMI data come ahead of the European Central Bank's governing council meeting on November 7, with a number of economists forecasting a quarter-point cut to the ECB's refinancing rate.

"Despite the slight improvement in the October manufacturing Eurozone PMI, there is a very real possibility that the ECB will feel compelled to cut interest rates," Archer added.

"While it seems unlikely that an interest rate cut to 0.25 percent would have a major impact in boosting euro zone growth, it may at least help keep the euro at a more competitive level and limit market interest rates."

By CNBC's Katrina Bishop. Follow her on Twitter @KatrinaBishop and Google