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Euro-area manufacturing started 2020 showing signs of recovery after unexpected economic contractions in France and Italy damped growth in the fourth quarter.
Order books in the region continued to stabilize in January and warehouse stocks fell the most in more than three years. Expectations for output growth also jumped as sentiment across the region improved.
“Green shoots of recovery” are in sight, said Chris Williamson, an economist at IHS Markit. “The improvement adds to our view that the euro-zone economy could see growth strengthen in the coming months.
The 19-nation economy expanded a mere 0.1% in the fourth quarter, the least in almost seven years.
While France can blame its poor performance at least partially on disruptions caused by massive strikes against President Emmanuel Macron’s pension reform, Italy’s is facing more persistent problems. The IMF has urged the government to liberalize its labor market and improve competition to rekindle chronically low economic growth.
In the euro area, a Purchasing Managers’ Index for manufacturing rose to 47.9 from 46.3, slightly exceeding an initial estimate. While the reading below 50 still indicates contraction, it’s the strongest since April. Gauges for industry in Greece, Ireland and France signaled expansion.
The report is likely to reinforce views that the year-long factory slump that has hobbled the euro-area economy is finally coming to an end. The European Central Bank has turned slightly more optimistic, arguing risks to the economy have become “less pronounced.”
At the same time, many threats remain.
“Key risks which could alter the brightening outlook include the threat of U.S. tariffs and trade-war escalation, Brexit-related disruptions to trade as well as uncertainty surrounding the impact of the Wuhan coronavirus,” according to Williamson.
European companies operating in the city and across China have already started to flag hits to profit from extended plant closures. Wuhan is the fourth-largest city for auto production in the country, and both Peugeot and Renault (PA:RENA) have operations there.
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