Euro zone manufacturing grows for 1st time in 2 years in July - PMI

By Andy Bruce

LONDON (Reuters) - Euro zone manufacturing activity grew for the first time in two years in July as factory output surged, a business survey showed on Thursday, suggesting the region may pull out of recession this quarter.

Markit's Eurozone Manufacturing PMI rose to 50.3 in July from June's 48.8, revised slightly higher from a preliminary reading of 50.1 and crossing the 50 threshold for growth for the first time since July 2011.

It follows a string of promising economic data out of the euro zone, which has wallowed in recession since the end of 2011.

Unemployment fell for the first time in more than two years in June, data showed on Wednesday, while economic sentiment hit a 15-month high last month. Consumer spending in Germany, France and Spain disappointed in June, but overall the data point to a muted recovery - Thursday's manufacturing PMI included.

The European Central Bank concludes a policy-setting meeting later on Thursday but is not expected to make any major changes to policy, backed by a PMI showing little sign of inflation pressures.

"This hopefully places the sector nicely to provide a positive spur to the third-quarter GDP numbers and help the euro area exit recession," said Rob Dobson, senior economist at PMI compiler Markit.

Economists polled by Reuters in July expect the economy will grow 0.1 percent from July through September, compared with the stagnation they predict for last quarter.

"Manufacturing output rose again in Germany, Italy, the Netherlands and Ireland during July, while there were welcome returns to growth for France and Austria," said Dobson.

There were signs the downturns in the euro zone's most vulnerable economies, like Spain and Greece, are easing too.

The survey's output index jumped comfortably above the dividing line for growth, rising to 52.3 in July from June's 49.8. New business rose for the first time since May 2011, while export orders returned to growth after slipping in June.

However, the employment index stayed below the 50 mark, although it rose sharply to 49.1 from 47.8.

"The bugbear of eurozone manufacturing remains its lackluster labor market, which contributes to the persistent joblessness of the region as a whole," said Dobson.

"Even here there were tentative signs of recovery, with the rate of manufacturing job losses easing to a one-and-a-half year low."