Euro zone: No evidence of a double-dip recession, yet

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Markit released its flash euro zone PMIs yesterday. The number surprised on the upside as most observers were expecting declines. The Services Business Activity Index came in at 56.0 compared to June’s 55.5, while the Manufacturing PMI at 56.5 compared to 55.6 in June is at a three-month high.

Markit reported that output growth had picked up in both manufacturing and services, with manufacturing output showing the strongest rise since October 2006. Employment continues to rise, while stocks of inputs indicate the first period of stock-building in three years.

GDP growth in the euro zone can be expected to beat estimates as it is clear the immediate fall-out of the European debt crisis is very limited. I have therefore upped my year-on-year forecast to 2.5% for the second quarter.

Sources: Markit; I-Net; Plexus Asset Management.

Based on the historic relationship between PMI and stock market indices, the flash PMI estimates should provide support to European equity markets.

Sources: Markit; I-Net; Plexus Asset Management.

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