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Eurozone economy stabilises in August

BRUSSELS, Aug 21 – The eurozone economy stabilised in August ending a lengthy run of business contraction, a closely-watched survey showed Friday, boosting hopes that Europe is emerging from the global economic crisis.

The eurozone\’s purchasing managers\’ index (PMI), compiled by data and research group Markit, rose to a 15-month high of 50 points in August from 47 points in July, adding to other signs that the recession is bottoming out.

This initial estimate of the August figures is right on the boom-bust line of 50 points — a score below 50 indicates business contraction among the 16 nations that share the euro currency.

"The data are signalling that the unprecedented downturn has been followed by an historically rapid rebound that positions the eurozone to post growth … in the third quarter," said Rob Dobson, senior economist at Markit.

However, "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," he added.

The separate PMI index for the eurozone\’s vast service sector also gained ground, up to another 15-month high of 49.5, a major rise from the 45.7 points posted in July.

The struggling manufacturing sector also saw an improvement, with its index rising to 47.9 from 46.3 in July.

The headline figure has improved in each of the past six months, after hitting a record low of 36.2 points in February.

August\’s jump of three points was also the biggest since the survey began and significantly higher than the 48.3 point level predicted by analysts polled by Dow Jones Newswires.

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Last week, the EU\’s official Eurostat data agency announced that the eurozone\’s trade surplus doubled in June to 4.6 billion euros (6.5 billion dollars).

Earlier this month, eurozone heavyweights Germany and France led a surprise rebound out of recession, helping drag the 16-nation eurozone very close to positive territory.

David Henry, economist at the London-based Centre for Economics and Business Research, warned that the eurozone\’s recovery may not only be led by the economic resurgence of France and Germany but divided by it.

"The strength of the French and German economies relative to the eurozone as a whole indicates that there is a significant divide forming between the economies which make up the eurozone," he cautioned.

"If this divide continues to build, it will put added pressure on the euro, which is already being seen in the differing yields for the euro-denominated government debt from the various eurozone nations."

Overall the figures were welcomed by analysts, although no one was predicting that Europe is totally out of the recession woods.

Jean-Christophe Caffet, eurozone economist for French Investment bank Natixis, said activity will slow again from the second half of 2010 as national stimulus packages tail off and unemployment levels rise.

"The eurozone economy could fall into recession again at the end of next year," Caffet warned.

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