European Manufacturing And Services Ease Contraction, Moving In Line With Draghi`s Comments

European manufacturing and services data showed an ease in contraction in the first month of 2013, to move in line with the latest announcements by ECB President Mario Draghi.

PMI composite of manufacturing and services showed a contraction for a 12th month in Jan. yet the contraction eased to 48.2 from 47.2 in Dec., according to the advanced reading.

Manufacturing sector eased contraction to 47.5 from the prior of 46.1 and services improved to 48.3 from 47.8.

The progress seen in the two major sectors in the euro area moves in line with the announcements of Draghi this week as he said the worst of the debt crisis may be over, stating the “darkest clouds” have lifted.

Draghi attributed the improvement to the measures taken by European officials last year to resolve the Greek debt dilemma while taking steps towards banking union.

Euro area finance ministers reached an agreement with the IMF to unlock Greece`s next aid tranche on four installments starting from December and ending in March 2013, where they gave the green light to a disbursement of 9.2 billion euros during their meeting this week.

Another critical outcome of the EU finance ministers gathering at the end of last year was making the ECB as chief supervisor of euro zone banks which is deemed a step of a paramount importance as it paves the way for a strong European banking union.

The ECB left interest rate on hold this month and closed the door for any close cut in the benchmark as Draghi referred to stability in economic conditions and improvement in financial markets.

In Germany, the manufacturing gauge surged to 48.8 from 46.0, whereas services recorded a widening expansion to 55.3 from the prior of 52.0.

Data released this week showed that German investor confidence climbed to 2 1/2 year high in Jan. to give some indications that Germany will gather momentum in 2013.

However, the euro area is still in recession and may continue in contraction in the final three months of 2012, while unemployment is at its highest level (11.8%) since compiling data in 1995, where progress is expected to take place later in 2013, particularly in the second half of the year, according to Draghi.

A report released today from Spain showed that unemployment hit a new record high of 26.02% in the fourth quarter from 25.02% in the three months ended September.

The IMF expects Spain to lead the contraction in the euro area this year as it lowered its expectations for Spain to a contraction of 1.5% this year, compared with 1.3% predicted in October.

Also, the IMF estimates slower growth for Germany, to reach 0.6% in 2013, which was also subject to a cut in growth forecasts by the government and the Bundesbank.

The euro area will record a contraction of 0.2% this year, instead of previous forecasts of 0.1% expansion, according to the IMF.

As of 09:30 GMT, the euro inched up against the U.S. dollar to trade around 1.3325 after hitting a high of 1.3345 and a low of 1.3285.