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Eurozone seen slipping in to recession

Wednesday, September 05 11:40:16

The euro zone probably slipped back into recession in the current quarter, according to business surveys today that also showed Asia's services sector growth remained muted in August as the global economy struggled to get its footing.

The Purchasing Managers' Index (PMI) for the euro zone, published by Markit, showed the economic rot that began in smaller periphery members of the 17-nation bloc is now taking hold even in Germany, its largest and strongest economy.

"There is very little in the overall euro zone PMIs to suggest an imminent recovery. The figures are consistent with the economy returning to a technical recession," said Philip Shaw at Investec. "The overall levels of growth implied by the PMIs in Asia are stronger but it is pretty clear that the Asian economies are catching a cold from the economic woes being suffered elsewhere." A Reuters poll published last month predicted the euro zone would contract 0.2 percent in the three months to September but Markit said the PMIs suggested the downturn could be far worse, shrinking by 0.5-0.6 percent.

The euro zone economy shrank 0.2 percent in the three months to June, according to official data. A second quarter of contraction would meet the technical definition of recession.

August's euro zone composite PMI, which measures manufacturing and services together, fell to 46.3, revised down from a flash reading of 46.6 and below July's 46.5.

It was pulled down by a fall in Germany's composite PMI to 47.0, its lowest reading since June 2009 when the euro zone was in the middle of the worst recession since World War Two. While the situation in Europe remains dire, survey data from Britain released on Tuesday provided some respite. Its services sector posted unexpectedly strong PMI numbers, a sign the country may be crawling out of recession.

Ireland's services sector grew for the first time in four months in August, a PMI survey showed on Wednesday, as a rise in new business at home and abroad offered some shelter from a slump in the rest of the euro zone.

But with downbeat PMI surveys from Italy, France and Germany, investors are anxious to see if the European Central Bank will adopt more drastic measures at its policy meeting on Thursday to help alleviate the crisis in the region and reduce crippling borrowing costs in Spain and Italy.

The sovereign debt crisis which began in the euro zone's smaller economies is now hammering business and consumer confidence worldwide, putting pressure on policymakers to take radical steps to help.

With the crisis in the euro zone showing little sign of easing, hopes of a quick turnaround in China's fortunes are fast fading, with many forecasting its economy to remain weak well into the third quarter and possibly beyond. (C ) Reuters