Eurozone Manufacturing Expands -- First Time in 17 Months

France and Germany showed largest increase in new orders

In the latest sign that the worst of the recession is behind Europe's leading economies, manufacturing activity across the eurozone expanded in October for the first time since May 2008.

The 16-nation euro currency bloc's purchasing managers' index (PMI) for the manufacturing sector, published by data and research group Markit, rose to 50.7 points in October, up from 49.3 points in August.

It was the first time the widely-watched reading has been above the crucial 50.0 boom-or-bust line -- and marks its highest level since April 2008 when it also stood at 50.7.

Output also increased for the third month running in October, rising by slightly less than an earlier flash estimate but indicating the fastest monthly expansion since January 2008.

Meanwhile, new orders for eurozone manufacturing posted their largest monthly rise since August 2007 -- with growth in France and Germany hitting 35- and 26-month highs respectively, Markit said.

Only Greece, Ireland and Spain saw lower levels of new orders.

"Business conditions in the eurozone manufacturing sector improved for the first time since May of last year, driven by accelerating growth of output and new orders and moderating job losses," said Markit's Chris Williamson.

Employment levels fell for the 17th month running, but slightly less sharply than initially anticipated with the rate of job losses "the weakest for a year," the survey underlined.

However, uneven manufacturing results across the bloc were causing concern. "In particular, surging nine-year high growth in France sits uncomfortably with ongoing weakness in Italy and Spain," Williamson added.

The return to expansion "supports hopes that the eurozone economy is picking up further in the fourth quarter after a seemingly certain return to growth in the third quarter," said IHS Global Insight chief economist Howard Archer. He nevertheless cautioned that "for sustained, robust manufacturing expansion to occur, there needs to be extended healthy growth in orders from both domestic and foreign markets."

Citing difficulties posed by the euro still trading at almost $1.50, Archer added that "this currently remains far from certain -- particularly once fiscal stimulus measures start to be withdrawn."

The eurozone economy shrank by an upwardly-revised 0.2% in the second quarter and 2.5% in the first quarter, but is expected to confirm a return to growth when results for the third quarter are posted on November 13.

Copyright Agence France-Presse, 2009

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