Europe's biggest slump for nearly three years fuelled the crisis on the Continent today, as industry surveys warned that fears over a Greek plunge out of the euro is crippling confidence in Germany and France.
The latest signs of economic gloom came as markets were left unimpressed
by the latest summit efforts of European leaders to boost growth, hitting the
euro and sending investors scurrying into safe-haven German bunds.
Financial information firm Markit's latest survey revealed that the
eurozone suffered its worst downturn since June 2009 in May. Its activity
index -- where a score under 50 signals economic contraction -- sank to 45.9.
The single currency bloc avoided a double-dip recession by the skin of
its teeth in the first quarter of 2012 as its economy stagnated.
But Markit warned today that the region was unlikely to escape a fresh
contraction in the second quarter of the year.
The uncertainty is set to linger until Greece's new elections on June 17
-- which is now effectively a referendum on the euro.
Markit's chief economist Chris Williamson said: "The flash PMI indicated
that the eurozone downturn gathered further momentum in May, with business
activity and new orders both falling at the fastest rates for just under three
years.
"The survey is broadly consistent with gross domestic product falling by
at least 0.5 percent across the region in the second quarter, as an
increasingly steep downturn in the periphery infects both France and Germany."
France -- which has also been hit by uncertainty in the build-up to its
presidential election -- suffered the worse private sector slump since April
2009 in the depths of the last recession.
More worrying still, the powerhouse German economy -- which accounts for
around a fifth of eurozone output -- also slipped back into overall
contraction during May as resilient services growth was again offset by
manufacturing weakness.
Germany's Ifo survey of business confidence added to the alarm with the
sharpest drop since August last year. ING Bank economist Carsten Brzeski said:
"German businesses have finally lost their optimism."
Last night's inconclusive informal summit -- which failed to shed more
light on the potential solutions to the debt crisis -- sent the euro dipping
against the pound and the dollar today.
Germany's 10-year borrowing costs hit a new, all-time low of 1.35 percent
as the summit was overshadowed by German-led resistance to calls for commonly
backed eurobonds and easing up on austerity for strugglers like Spain.
Leaders will make no decisions until June's summit. CMC Markets analyst
Michael Hewson said the latest delay "illustrates the paralysis at the heart
of Europe's policy-making machinery."
