Euro zone manufacturers have put in their best performance in over three years, a key survey showed on Thursday, but growth is so soft that the chance of an official interest rate cut in the next few months remains open. The Eurozone Purchasing Managers Index, which measures business activity in manufacturing, rose to 53.3 last month from 52.5 in February, wrong footing economists who predicted a fall to 52.3. This pushed the index to its highest level since December 2000 and kept it above the 50 line dividing growth from contraction for a seventh month. But the PMI remains well below the 58-60 range seen in the boom time of early 2000. "The pace of economic growth in the manufacturing sector has accelerated marginally during the month but the key message is that growth remains very subdued," said Chris Williamson, chief economist at NTC Research which compiles the index for . "Personally, I think the survey opens the gates to a cut in (European Central Bank) rates in May," he added. The survey of 3,000 firms was carried out after the March 11 Madrid train bombings, which killed 191 people and are widely believed to be al Qaeda's first major attack in the West since the September 11, 2001, strikes against the United States.
But NTC said the index was little affected by the events, although the rate of growth slowed in Spain itself. Recent downbeat economic data, such as the March fall in the German Ifo business climate index, and comments from central bankers have raised expectations that euro zone interest rates will be cut. The ECB is widely expected to leave rates on hold later on Thursday, but 19 of 55 economists polled by this week said rates had further to fall from the current 2.00 percent, with most of these looking for a cut in May or June. "(The PMI is) probably consistent with industrial production in the euro area of in the region of one percent...Some would argue that a rate of growth in that region would allow for rates to be cut for the benefit of the economy," said Williamson.
GERMANS WIN BUSINESS
The equivalent U.S. indicator, the Institute for Supply Management's manufacturing index, is due at 1500 GMT and is expected to slip to 60.0 from 61.4 in February. Within the euro zone, the Italian index rose to 52.1 from 50.8, whilst the French PMI climbed to 53.2 from 52.0. The German survey gave its highest reading since November 2000, coming in at 54.1 from February's 53.4. "Companies are benefiting from the slight weakening of the euro against the dollar," said Williamson. "It's still high, so it's still hurting, but there was a weakening there which provided a window to win some new business for Germans." The strength of the euro has long been a worry for manufacturers who need to keep their goods competitively priced in foreign markets. The single currency has retreated from its February peak of above $1.29, but at current levels of around $1.22 remains some 40 percent higher than two years ago.
MIXED JOBS PICTURE
The possibility of another euro rally is one of the factors deterring euro zone manufacturers from taking on more staff. The employment index for the bloc edged up to 48.7 in March but stayed firmly in contraction territory for the 34th month. Of the main economies, the job situation looked most promising in Germany whose index was just under the key 50 mark at 49.7. France and Italy fared less well. "There is a mixed picture... but with Germany being the largest economy and showing signs of increasing willingness to take on staff in the manufacturing sector, the euro zone employment picture is beginning to look a bit brighter," Williamson said.///