Has the Euro Zone Turned a Corner?

U.S. markets got a cautious start on Friday following the release of December’s purchasing managers indexes, which measure the business activity of thousands of private sector companies worldwide, gave a far different picture of Europe than previous reports did last year.

However, it was a mixed account. While its composite PMI failed to pass the 50-point mark that divides expansion from contraction, the euro zone’s purchasing managers index rose to its highest level since March 2012. It increased to 47.2 last month from 46.5 in November, a possible sign that the euro zone may have survived the worst of its economic downturn.

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But Britain’s fortunes did not rise with those of the euro zone; business activity dropped for the first time in two years. The country’s services PMI dropped to 48.9 in December from 50.2 last month, as its economy sank back into contraction in the last months of the year. Markit, the firm that compiled the survey, told Reuters that the data indicates that Britain’s economy shrank 0.2 percent, a greater decrease than other private-sector predictions.

The survey’s results brought a small measure of confidence to economists. “I think (the euro zone PMIs) are showing a decisive bottoming-out of activity,” said James Nixon, chief European economist at Societe Generale, to the publication.”Now, the actual levels of the surveys are still consistent with GDP declining, but at least things aren’t getting worse any faster.”

Chris Williamson, chief economist at Markit, had a similar assessment. “The surveys at least bring some substance to the belief that the worst is over and that a return to growth is in sight for the region in 2013,” he said.

While Markit’s report suggested improvements for the region, its economic fate depends on the resolution of the sovereign debt crisis.

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