European manufacturing grows for 14th month in August

Analysis

European manufacturing probably increased for a 14th month in August as construction and investment spending in Germany spurred economic expansion, a survey of economists shows. A Royal Bank of Scotland Plc index compiled by NTC Economics Ltd. probably declined to 57 from July's 57.4, according to the median of 36 forecasts in a Bloomberg News survey. A reading above 50 indicates expansion and the gauge, based on a survey of 3,000 purchasing managers, has been above that level since June 2005. The report will be published at 9 a.m. in London. Europe's economy expanded at the fastest rate in six years in the Q2 and may keep growing near that pace into 2007. That may enable the European Central Bank to keep raising interest rates to contain inflation without stifling growth, said Gerd Hassel, an economist at BHF-Bank in Frankfurt. The economy „will remain strong in the next several quarters,” said Hassel, who expects a reading of 56.7 in the manufacturing index. „The ECB isn't afraid of an economic slowdown right now. Inflation is still the bigger concern.” The euro area economy expanded 0.9% in the Q2, faster than the US and Japan. Aug. 31, the ECB raised its growth estimate for the region to about 2.5% this year, from its earlier forecast of 2.1%, while holding the benchmark lending rate at 3%.

Europeans' confidence in the economy declined in August, the European Commission said Aug. 31. „It's very difficult to gauge whether we reached a peak or not” in the Q2, said ECB executive board member Lorenzo Bini Smaghi on Aug. 26. „In the last two quarters, we have seen a very strong recovery, even though there are risks from oil prices and public finance.” Crude oil climbed to a record $78.40 a barrel on July 14 and has surged 65% in the past two years. Oil reached $70.82 in New York Aug. 31. The rise in oil is also boosting inflation in Europe, pushing the ECB to raise interest rates. The central bank has increased its benchmark rate four times since early December, to the current 3%. The bank Aug. 31 raised its forecast for inflation this year to about 2.4 from 2.3%. Consumer prices rose 2.3% in August from a year earlier, a slowdown from July, when they climbed 2.4%. (Bloomberg)

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