Eurozone Business Downturn Points to Deeper Recession, PMI Warns

Monday, 06 May 2013 07:14 AM

 

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The eurozone's business downturn dragged on in April, suggesting the region may be falling deeper into recession this quarter, business surveys showed on Monday.

The purchasing managers indexes (PMIs) also showed that Germany is now suffering a contraction in business activity that has long dogged France, Italy and Spain.

Markit's Eurozone Composite PMI, which gauges activity across thousands of companies and is seen as a good gauge of economic conditions, edged up in April to 46.9 from 46.5 in March, marking an improvement on an initial reading of 46.5.

But the index has now been below the watershed 50 level that divides growth from contraction for over a year, and April's reading was far lower than those seen in January and February.

"The PMI suggests that, having eased in the first quarter of the year, the eurozone's economic downturn is likely to have gathered momentum again in the second quarter," said Chris Williamson, chief economist at Markit.

"The PMI is broadly consistent with GDP falling at a quarterly rate of 0.4-0.5 percent in April."

The eurozone economy chalked up its fifth straight quarter of contraction in the last three months of 2012, and a further downturn is predicted for the first quarter of 2013.

Economists expect only negligible growth this quarter, but the PMIs suggest even that view may be too optimistic.

Private industry makes up nearly two-thirds of the eurozone's economy.

The European Central Bank cut its benchmark interest rate to a record low of 0.5 percent last week in its latest effort to support growth.

The central bank held out the possibility of further policy action to support the recession-hit bloc, something they may have to do.

"The ECB has responded to the crisis by cutting interest rates to their lowest ever, but it seems difficult to believe that a mere 25 basis point cut from an already low level will have a material impact on an economy that is contracting so sharply," Williamson said.

BIG FOUR FLOUNDERING

Germany, Europe's largest economy and the eurozone's paymaster, saw services activity contract for the first time in five months, although not as fast as previously estimated.
France, Italy and Spain — the bloc's biggest economies after Germany — all reported continued contractions in services business.

This kept the eurozone PMI for services firms, which make up almost half of the economy, below the 50-point breakeven line for the 15th month in a row, even though it rose to 47.0 from March's 46.4 and from an initial flash estimate of 46.6.

To drum up business, services firms slashed their prices at the fastest rate since late last year. The output price index slumped to 47.1 from March's 47.8.

Official figures released last week showed prices across the region rose just 1.2 percent in April — well below the central bank's 2 percent target ceiling — while unemployment hit a new high of 12.1 percent.

The PMI survey suggested the jobless rate might have further to rise, with the composite employment subindex coming in at 47.4, its 16th month in negative territory and down from March's 47.7.

© 2014 Thomson/Reuters. All rights reserved.

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