Eurozone recovery gathers pace as growth hits two-year high

But picture remains mixed, with good German results contrasting with gloom in France

The Euro logo outside the European Central Bank in Frankfurt am Main, central Germany (BORIS ROESSLER/AFP/Getty Images)

A key survey today revealed the eurozone's largest monthly increase in business activity for more than two years - raising hopes of a sustained recovery.

However, the picture painted by the August PMI survey from analysts Markit remained mixed, with German firms toasting their fastest rate of output since January but France suffering an accelerating decline.

The "peripheral" countries of Spain and Italy saw an improvement in growth as exports to neighbouring nations picked up.

Markit chief economist Chris Williamson said: "Structural changes made in countries like Spain, such as reducing labour costs, are filtering through. Arguably, a winding back of austerity in some countries has also helped.

"Overall, there are signs this recovery in the eurozone is starting to look more sustained."

He said the outlook in the region was now at its brightest since early 2010, before the Greek crisis erupted.

The PMI Composite Output Index, in which any figure above 50 indicates growth, rose from July's 50.5 to 51.7 in August.

Employment levels fell for the 20th successive month with the pace of job losses accelerating in both manufacturing and service sector firms.

Germany's position as the powerhouse for the region was heightened by rising demand for its goods both domestically and in its export markets despite concerns about weakening growth in Asia.

Many economists have been concerned about the impact on global demand of the forthcoming reduction of the $85 billion (£54.6 million) a month quantitative easing programme from the US Federal Reserve. Last night's minutes from the Fed's most recent meeting did little to dispel expectations that this so-called "tapering" could begin as early as next month.

Markit's figures on France's weak performance added to scepticism over the accuracy of the surprisingly strong official GDP data for the country in the second quarter of the year.

Shares in Europe and London gained, helped by stronger-than-expected Chinese manufacturing figures. The CAC-40 in France and Germany's Dax index rose 1 per cent, while the Spanish and Italian stock markets gained nearly 2 per cent. The FTSE 100 rose 54.76 to 6445.6.