Eurozone sees order books expanding at fastest rate in two years

The Eurozone recovery may finally be materialising, albeit at a lacklustre pace.

Data from Markit has shown the currency bloc's purchasing managers' index has risen from 50.5 to 51.5.

That's below expectations of a rise to 51.7, but it's still pretty good news.

Christian Schulz, senior economist, Berenberg:

The overall data conceal two different recoveries happening at the same time. Germany has a domestic-demand driven recovery: the domestic-oriented services PMI is stronger than the export-oriented manufacturing equivalent. In all other major countries it is the other way around, confirming an export-led demand.

Among large countries, Spain is the most advanced in terms of structural reforms, and it shows: Spain seems the closest to emulating Germany’s export-led recovery in the mid-2000s following its Agenda 2010 labour market reforms. Led by strong export growth, confidence is spreading to the more domestic oriented services sector. Unemployment should continue to fall, which, in turn, improves the fiscal situation and relieves the financial sector.

A virtuous circle could begin, where fiscal improvement helps borrowing costs to fall, stimulating investment and jobs growth. That then increases tax revenues and improves the fiscal situation even further. Italy and France are falling behind, although their economic and fiscal problems were smaller than Spain’s. Further reforms will be inevitable in both countries.

Chris Williamson, chief economist at Markit said:

The eurozone recovery is looking increasingly broad-based, with more sectors and more countries emerging from recession.

Service sector companies reported the first increase in business activity for a year-and-a-half in August, which follows news from the manufacturing PMI that goods production is now growing at the fastest pace for over two years. Encouragingly, domestic demand is starting to pick up within the euro area, with the region’s retail PMI also moving into positive territory for the first time in over two years in August.