The decline in the euro zone's dominant services sector almost came to a halt in August and businesses' expectations for the future soared to their highest level in more than two years, a key survey showed Friday. Data also showed manufacturing activity contracted at a far slower pace than expected and output rose for the first time in 15 months, suggesting that the broad euro zone economy has stopped contracting after its worst recession on record. Markit's Eurozone Flash Services Purchasing Managers Index (PMI), compiled from surveys of around 2,000 companies, climbed to 49.5 in August from 45.7 in July, its highest since May last year and smashing expectations for a rise to 46.5. Services companies are at their most optimistic since April 2007, before the financial crisis began, with the business expectations index leaping to 66.5 from 61.4 in July. The combined rises in the services and manufacturing indexes took the Composite Index to a 15-month high of 50.0, right at the dividing line between contraction and growth, up sharply from 47.0 in July and shattering expectations for 48.1. “PMI data are signaling that the unprecedented downturn has been followed by an historically rapid rebound that positions the euro zone to post growth of GDP in the third quarter,” said Rob Dobson, senior economist at Markit. “(But) rising job losses and the continued need for widespread and deep price discounting remain concerns looking ahead as a sustained recovery in demand is necessary if the emerging rebound is to gain traction,” Dobson said. The euro zone flash manufacturing PMI was also comfortably ahead of economists' expectations for 47.5, climbing to a 14-month high of 47.9 in August from 46.3 last month. The output index for the sector, which is used to calculate the composite PMI, rose above 50 for the first time since May 2008, moving up to 50.8 from 49.4 in July. The euro zone economy contracted 0.1 percent in the second quarter of this year, having shrunk by 2.5 percent in the first quarter – the sharpest decline on record – but economists polled by Reuters this week expect it to grow by 0.2 percent in the current quarter.
