Reuters/London

Strong orders for manufactured goods helped eurozone factory activity rise at the fastest pace in over two years in August and led to backlogs of work for the first time since mid-2011, a survey showed yesterday.

The eurozone’s nascent recovery may be taking hold as survey compiler Markit said conditions improved across all major economies in the 17-nation bloc bar France.

New orders came in at their quickest rate since May 2011, suggesting the momentum will continue.

Markit’s Manufacturing Purchasing Managers’ Index (PMI) jumped to 51.4 from 50.3 in July — the first month the index had been above the 50 line that signifies expansion since February 2012. The final reading pipped an earlier flash figure of 51.3.

“Although gains are still only modest, companies reported the strongest improvement in business conditions for just over two years, with a pick-up in new orders growth suggesting the upturn will be sustained into September,” said Chris Williamson, Markit’s chief economist.

The eurozone escaped from a 1-1/2 year-long recession last quarter with growth of 0.3%, supported by stronger than expected expansions in Germany and France, although a Reuters poll last month suggested growth would be weak for some time.

A sub-index measuring output, which feeds into the wider composite PMI due tomorrow and seen as a good indicator of growth, rose to a 27-month high of 53.4 from July’s 52.3, in line with the flash estimate.

That growth in output is likely to follow through into next month as the new orders index jumped to 53.3 from 50.8 in July, its highest level since May 2011. For the first time in 27 months factories built up a backlog of work.

The Markit survey comes after data on Friday showed optimism in the eurozone’s economy improved sharply in August although unemployment remained stubbornly high in July, particularly in the bloc’s weaker members.

A Reuters poll last week suggested there was a sizeable chance the bloc’s most vulnerable countries would need more outside help within a year to sort out their finances.

The PMI showed manufacturers reduced headcount for the 19th month in August and at a sharper rate than in July.

“The fact that companies remain reluctant to take on staff — due to the need to cut costs to boost competitiveness and offset rising oil prices — suggests that there’s a long way to go before the recovery feeds through to a meaningful job market improvement,” Williamson said.

Factories across central Europe reported growth in output and new business in August, a recovery in the region gaining strength in the wake of an improving German economy.

Purchasing managers indices beat forecasts in Poland and the Czech Republic and also rose in Hungary, survey data showed yesterday.

In Poland, the main HSBC manufacturing PMI index rose to 52.6 from 51.1 a month ago, the fastest expansion in over two years. The Czech index jumped to 53.9, above a forecast of 52.7.

Hungary, which uses a different index released by the Association of Logistics, Purchasing and Inventory Management, reported a jump to 51.7 from 49.

“The raft of manufacturing PMIs across central Europe for August provide further evidence that the region’s recovery is gathering pace, helped by the improvement in the German economy,” Capital Economics emerging markets economist William Jackson said.

“All in all, these surveys support our view that central Europe is set for a recovery over the coming quarters.”

Central Europe is closely tied by trade links to Germany, by far Europe’s largest economy, whose strong performance has a knock-on effect on the region.

Germany reported growth of 0.7% in the second quarter and recent data has provided further evidence it is bouncing back from a slowdown last year, which should bode well for its eastern neighbours.

Sindat, a Czech holding group including companies in textiles, nanotechnology and chemicals, has seen a pickup in exports of technical textiles for the car sector to Germany, its general director, Karel Havlicek, said.

“The automotive industry is running well and Germany is now also running very well (for business),” he said.

The Czech economy is just exiting a contraction that started in the middle of 2011 while Poland narrowly missed falling into recession earlier this year. Hungary, too, is recovering from recession after the trade slowdown with the crisis-hit eurozone hit growth in the EU’s eastern wing.

“It confirms what we already know — that we have the worst behind us and that we are in a recovery,” Urszula Krynska, economist at Millennium Bank said of the Polish figures. “Economic growth will be accelerating in upcoming quarters, we expect full-2013 growth at 1.3%.”

The figures helped the zloty firm 0.1% against the euro and bucked up other currencies in the region.

Polish data on Friday confirmed that growth in the European Union’s largest eastern economy picked up to an annual 0.8% from 0.5% a quarter earlier, recovering gradually from the deepest slump in years.

The Czech index added to the case for the central bank to hold off intervening in foreign exchange markets to weaken the crown currency and aid growth.

“It is strongly positive, not only the headline figure but also the composition is very good,” said David Marek, chief economist at Patria Finance.

“That (means) especially a rise of orders, export orders, employment... All of them provide a big chunk of optimism.”