Finance time

Europe’s service and manufacturing industries expanded at the fastest pace in more than two years in December, suggesting the euro-area economy is gathering strength.

A composite index based on a survey of purchasing managers in both industries in the 16-nation euro region increased to 54.2 from 53.7 in November, London-based Markit Economics said today in an initial estimate. That was the highest since October 2007. Economists expected a gain to 54, according to the median of 10 forecasts in a Bloomberg survey. A reading above 50 indicates expansion.

European companies are stepping up output to meet reviving orders after global governments spent billions of dollars on stimulus measures. While European economic confidence rose to the highest in more than a year in November, companies are still cutting jobs to help shore up earnings.

“The expansion continues, broadens, but at a weaker pace than in the previous months,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London. “The strength of the industrial sector will probably moderate in the fourth quarter while service activity will strengthen.”

An index of services rose to 53.7 in December from 53 in the previous month, Markit said. That was the highest since November 2007. A gauge of manufacturing increased to 51.6 from 51.2 in the previous month.

Benchmark Bond

The euro was little changed against the dollar after the data, trading at $1.4553 at 10:14 a.m. in London, up 0.1 percent on the day. The yield on the German 10-year benchmark bond dropped 0.1 basis point to 3.22 percent.

Governments around the world have pledged $2 trillion in stimulus programs to fight the worst global recession in more than six decades. The European Central Bank earlier this month kept borrowing costs at a record low of 1 percent and ECB President Jean-Claude Trichet predicted Europe’s economy to expand at a “moderate pace” in 2010.

Munich-based Linde AG, the world’s second-largest maker of industrial gases, last month reported the smallest drop in quarterly profit in a year and signaled business is picking up instant payday loans. Deutsche Bank AG, Germany’s largest bank, said on Dec. 14 that pretax profit may reach a record in 2011.

“Confidence has returned,” Ulrich Lehner, president of Germany’s VCI chemical association, said earlier this month. “Companies are hoping for better business in 2010.”

Euro-Area Economy

The ECB said on Dec. 3 that it projects the euro-area economy will expand about 0.8 percent in 2010 and 1.2 percent in 2011. The Frankfurt-based central bank previously forecast the economy to grow 0.2 percent next year.

While the region’s economy returned to growth in the third quarter, a recovery may remain too fragile to push down unemployment. At 9.8 percent, the euro-area jobless rate has risen to the highest in almost 11 years. At the same time, the euro’s 16 percent ascent against the dollar since mid-February is making European goods less competitive abroad.

In Germany, Europe’s largest economy, investor confidence declined for a third month in December, the ZEW Center for European Economic Research in Mannheim said yesterday.

ThyssenKrupp AG, Germany’s largest steelmaker, said on Nov. 27 that it plans to cut about 20,000 jobs amid a “fragile” recovery. Irish airline Aer Lingus Group Plc said this month that it will eliminate more positions to reduce costs and weather a slump in demand.

“It’s very clear still that there won’t be any easy and rapid recovery in the world economy,” ECB council member Erkki Liikanen said in an interview on Dec. 11. “We have come through a major financial crisis, and always after a financial crisis the recovery is slow and shaky and that is where we are now.”

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