After the release of manufacturing data in the euro zone and U.K. earlier this week, today eyes are on services, the largest sector in most European economies, to appraise the performance of the expected growth forecasts in the second quarter.
In the euro zone manufacturing sector's expansion slowed down as it came in at 55.8 in May from 57.6 in April, while German manufacturing inched up to 58.4 in May from 58.3.
PMI services for May final reading is expected to remain at 56.0 and 53.7 in the euro area and Germany respectively. Also, PMI composite for the euro zone is predicted to linger at 56.2.
Following the remarkable improvement in these leading sectors, after contracting during the recession, the pace of progress stared to ease amid the debt woes and rising unemployment in the euro area.
Trichet said previously that recovery will be gradual is estimated to be sluggish this year, where the economy will weigh upon sales overseas to boost growth, taking advantage of the euro's depreciation against the dollar.
EU officials introduced $1 trillion bailout package to highly indebted countries, more specifically Portugal, Spain, and Italy. In addition, Greece announced yesterday that it is planning to sell stakes in public-owned assets to trim the massive sovereign debt that reached 13.6% of GDP last year. As a result of the debt crisis in the euro area, economic confidence plummeted in May to 98.4 from 100.6, and German business confidence plunged in April.
On the other hand, unemployment in the euro zone inclined to 10.1% in April from 10.0%, the highest in 12 years, led by Spain with 20%. Despite the better-than estimated earnings announced in the first quarter, many companies are still lying off workers to cut costs.
The latest ECB anticipations are referring that the economy will grow 0.8% in 2010, ensuring that the economy will expand at a “moderate” pace and recovery will remain “uneven.”
Moving to the U.K., manufacturing climbed to 58.4 in May, to remain at the highest level in more than 15 years. Recent data has showed that the economy is showing progress; construction surged to 58.5 from 58.2, while today services is estimated to resume expansion to 55.7 in May from 55.3.
However, some analysts expect David Cameron's 6.2 billion pounds spending-cut plan will hurt household's income. Thus, the BoE is keeping interest rate low at 0.50% and leaving APF unchanged at 200 billion pounds to spur recovery.
In addition, the economy is benefiting from the pound's depreciation as it fell to low of 1.4229 in May against the dollar from the month's opening at 1.5334 which is expected to give a lift to exports.
OECD mentioned that the most difficult exam to global economies in the coming period is going to be cutting deficit without hurting growth especially as recovery is still fragile and needs further support from governments and central banks.
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