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Euro zone economy shows signs of recovery, optimism builds

Outside view shows the Euro sculpture in front of the headquarters of the European Central Bank (ECB) in Frankfurt.

ALEX GRIMM/REUTERS

The euro zone's embattled economy has turned a corner, according to a business survey on Tuesday that showed businesses are more optimistic about the future but highlighted a growing chasm between the region's economies.

Markit's Eurozone Composite PMI, which gauges business activity across thousands of companies and is seen as good gauge of growth, rose in January to a 10-month high of 48.6 from 47.2 in December – an improvement on the preliminary reading of 48.2.

While still signalling a contraction as the index has been below the 50 mark that signifies growth since February last year, it has risen consistently in the last three readings.

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Private industry makes up nearly two-thirds of the euro zone's economy and worryingly for policy makers, the data showed a widening chasm between Germany – Europe's largest economy – and France, the bloc's second biggest.

"The euro zone is showing clear signs of healing, with the downturn easing sharply in January and the region moving closer to stabilization in the first quarter," said Chris Williamson, chief economist at Markit.

"Growth is heavily skewed towards Germany, however, where the contrast with the contraction seen in France is the greatest seen since the survey began in 1998."

Markit's composite German PMI chalked up its biggest one-month rise since August 2009, soaring to its highest since June 2011. But in neighbouring France it plummeted to its lowest in nearly four years.

France's services PMI was even below readings from perennial laggards Spain and Italy.

The euro zone PMI for services firms, which make up almost half of the bloc's economy, rose to a 10-month high of 48.6 from 47.8, above a flash estimate of 48.3.

The economy likely contracted 0.4 per cent at the end of last year, notching up its third negative quarter, and will only stagnate in the current period, according to a Reuters poll published last month.

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But on the whole the thousands of services firms surveyed, ranging from banks to restaurants, were at their most optimistic since last May, with the business expectations index jumping to 56.4 from 52.5.

That was the biggest one-month rise in the index since August 2009, just as the troubled bloc emerged from the previous recession.

Euro zone factories had their best month in nearly a year during January as burgeoning German output offered support, data released last week showed.

Still, firms across the 17-nation bloc reduced their work force again last month and at the fastest pace in over three years, with the composite employment index falling to 46.1 from December's 47.3.

Unemployment hit a record 11.7 per cent of the working population in December, but inflation fell to a two-year low of 2 per cent in January, according to official data on Friday.

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