Euro-Area Factory Slump Eases in April as Italy Exceeds Estimate

(Bloomberg) -- The euro area’s manufacturing slump showed tentative improvement in April as Italy’s contraction slowed markedly and French industry stopped shrinking.

A Purchasing Managers’ Index came in at 47.9 in April, up from March and a touch above both economists’ estimates and a previous reading for the month. It was still below the 50 level that would indicate expansion.

The euro rallied as the report from Italian purchasing managers exceeded estimates amid improvement in new export orders and hiring. Industry there is still shrinking though, and the gauge for factory output for the 19-nation region is signaling contraction at a quarterly rate of 1 percent, a major drag on an economy increasingly sustained by services.

“It remains too early to call a turning point,” said Chris Williamson, an economist at IHS Markit. This suggests “that the manufacturing downturn will persist in the coming months.”

Expectations that the euro-area economy can weather its factory slump were boosted earlier this week when a report showed the region grew by stronger-than-expected 0.4 percent in the first quarter, supported by strong investment in Spain and buoyant consumer spending in France.

The European Central Bank has pinned its hopes on the economy recovering in the second half of the year. Policy makers have indicated that updated forecasts in June will be key in determining the generosity of their new bank-lending program.

While new orders staged another sharp decline in April, there were also some encouraging signs. Manufacturers maintained their optimism that output growth will rebound in the next 12 months. Gauges of activity rose in all of the euro zone’s four biggest economies, even though the levels remained largely disappointing.

With Germany leading the slowdown and manufacturing also contracting in Italy and Austria, euro-area companies saw the biggest drop in backlogs of work in more than six years -- a development that may prompt companies to start cutting costs and become more cautious in hiring.

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