Euro-Zone Growth Strikes Back

by Richard Barley


Wall Street Journal
January 24, 2012

Is the euro zone's glass half-full or half-empty? The International Monetary Fund joined the chorus of gloom on the euro zone Tuesday, slashing its 2012 economic forecast to a contraction of 0.5%. But the latest survey data suggest the euro area is proving remarkably resilient. The preliminary Markit euro-zone purchasing managers' index for January surprisingly moved back above the 50 mark that divides expansion from contraction, driven by a strong performance in Germany. Still, there are plenty of challenges ahead.

The composite euro-zone PMI index rose for the third month running to 50.4, way above the consensus expectation of 48.5. While manufacturing remained in contractionary territory at 48.7, services activity improved to 50.5, an important sign of strength in the domestic economy. Employment declined slightly, but more forward-looking indicators such as growth expectations and order-to-inventory ratios, while remaining weak, showed improvement.

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