Tuesday, July 24 09:56:38
The euro zone's private sector shrank for a sixth month in July as manufacturing output nosedived, adding to the likelihood that the bloc will slump back into recession, business surveys showed today. In a further blow to policymakers battling a raging debt crisis, the downturn that began in the euro zone's smaller economies has become entrenched in the core countries of Germany and France. Markit's Eurozone Composite Purchasing Managers' Index (PMI), a combination of the services and manufacturing sectors and seen as a guide to growth, held steady at 46.4 this month, missing expectations for an uptick to 46.5.
The index has been below the 50 mark that separates growth from contraction for six months, and data collator Markit said it suggests a quarterly GDP fall of 0.6 percent. "It's suggesting that things are getting worse," said Chris Williamson, chief economist at Markit. "The overall picture of stabilisation is masking an increasing problem in Germany and the core is being increasingly affected by the debt crisis." A Reuters poll predicted last week the bloc's economy would shrink a more modest 0.1 percent in the current quarter. Coupled with an expected 0.3 percent contraction in the second quarter, that would put the euro zone in its second recession since 2009.
To try and spur growth, the European Central Bank cut its main refinancing rate to a record low 0.75 percent and the deposit rate to zero earlier this month. A Reuters poll of economists showed the ECB will likely introduce more measures to help stimulate the economy, possibly including more cheap loans for banks. The central bank has been battling to stem the repercussions from a debt crisis that began in Greece over 2-1/2 years ago and is showing little sign of abating, putting the brakes on growth across the globe. Earlier data from Germany, Europe's largest economy, showed its manufacturing sector contracted at its fastest pace in over three years and that its service sector, which was expected to stagnate, also shrank. Next door in France factory activity fell at its fastest pace since May 2009 although its service sector confounded expectations by eking out a small amount of growth. Markit said that upturn was likely temporary, citing a return to business as usual after a presidential election.
The index for the euro zone's manufacturing sector, which drove a large part of the bloc's recovery from the last recession, fell to 44.1 from 45.1, well below the 45.3 forecast and it lowest since June 2009. The output index fell to 43.6 from 44.7, its lowest reading since May 2009. A PMI for the dominant service sector rose this month to 47.6, beating expectations for 47.2 and above June's 47.1, but marked its sixth month in sub-50 territory. The business expectations index, which measures what firms think the situation will be like in a year's time, fell to 50.1 from 52.1, its lowest since March 2009, when the bloc was last mired in recession. The factory new orders index slumped to 42.9 from June's 43.5, despite firms cutting prices for the second month to try and drum up custom.
To meet this fall in demand and optimism private sector firms cut their work force at the fastest pace since the beginning of 2010, according to the composite employment index which fell to 47.0 from 48.3. "Companies seem to be expecting things to deteriorate further in the coming months," Markit's Williamson said. ( C ) Reuters