Europe manufacturing hurt despite Germany

Eurozone output did increase, for the first time since July, but new order levels continued to decline across the region suggesting it may be some time before the troubled currency union’s economy returns to solid growth.

Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) rose to 48.8 last month from December’s 46.9, revised up from a flash reading of 48.7 but recording its sixth month below the 50 mark that divides growth from contraction.

The output sub-index was revised up from an earlier reading of 50 to 50.4, from 47.1 in December.

The eurozone is expected to wallow in a mild recession until the second half of this year, according to a Reuters poll, but even that assumes the region’s debt crisis will not flare out of control.

Fears that Greece could face a disorderly default if it does not quickly secure a debt swap deal with private creditors, or that Portugal might require a second bailout, continue to rattle investors and dent confidence.

The PMI’s new orders index, at 46.5, was above December’s 43.5 but still marked a contraction for an consecutive eighth month.

Meanwhile, manufacturing in Greece remained in deep recession, data showed.

The PMI for Greece fell to 41 points in January, its lowest level since November and down from 42 in December, staying well below the 50 mark that divides growth in activity from a contraction.

Production fell at a record pace as new order volumes and work backlogs continued to decline sharply. Respondents mainly blamed a weakening global economy for the decrease in foreign orders.

Greece’s 220-billion-euro economy is projected to have shrunk by around 6 percent in 2011, its fourth straight year of recession. It is seen contracting this year as well.