LONDON European manufacturing activity showed signs of stabilisation last month and will probably grow this quarter after encouraging signs emerged even in smaller members of the euro zone, a survey suggested on Monday.
Any indication of a recovery will be welcomed by the European Central Bank, which has come under pressure to take more action to help bring a quicker end to the longest recession in the bloc's history.
Markit's final Eurozone Purchasing Managers' Index rose to a 16-month high of 48.8 in June from May's 48.3, just above an earlier flash reading of 48.7 but below the break-even 50 level that divides growth from contraction for the 23rd month.
An index measuring output that feeds into the wider composite PMI due out on Wednesday jumped to 49.8, its highest level since February 2012, from 48.8.
"Euro zone manufacturing is showing welcome signs of stabilising. Both output and new orders barely fell during June, and on this trajectory a return to growth for the sector is on the cards for the third quarter," said Chris Williamson, chief economist at Markit.
The euro zone has been in recession for a year and a half and according to a Reuters poll last month will eke out only tepid growth of 0.2 percent from this quarter.
Central bank president Mario Draghi and other ECB policymakers said last week an exit from exceptional monetary policy measures remained "distant". The bank is not expected to change its main interest rate from a record low of 0.5 percent when it meets this week. <ECB/INT>
A sub-index measuring incoming export orders fell after notching up a small increase in May. The overall new orders index rose closer to the break-even mark.
Earlier figures from Germany, Europe's largest economy, showed factory output has risen in all but one month this year and in France, the bloc's second-biggest economy, the output index reached a 16-month high of 47.9.
"Output rose again in both Germany and the Netherlands, but it is the 'periphery' where the most encouraging signs are being seen. Returns to growth were seen in Ireland and Italy, while the rate of decline in Spain eased sharply to only a marginal pace," Williamson said.
Factories still reduced headcount last month but did so at their slowest pace since March 2012. The employment subindex rose to 47.8 from 47.4.
"With the region suffering from record high unemployment, the ongoing decline in manufacturing headcounts is a disappointment and suggests the jobless rate has yet further to climb," Williamson said.
"However, some consolation can be gained from the latest fall in employment being the smallest for over a year."
(Editing by Hugh Lawson)