News Column

Eurozone Remains in Recession

April 23, 2013

Andrew McCathie

Eurozone

The eurozone remains mired in recession, with a key economic sentiment survey released on Tuesday pointing to a protracted downturn in the region.

The London-based research group Markit said its closely watched purchasing managers' index (PMI) for the region's manufacturing and service sectors was unchanged at 46.5 points in April.

A reading below 50 points marks a contraction. The April PMI represented the 15th consecutive month that the survey has signalled contraction in the currency bloc's economic activity.

Based on a survey of about 5,000 companies, the index's preliminary April reading was in line with analysts' forecasts.

"Although the PMI was unchanged in April, the survey is signalling a worrying weakness in the economy at the start of the second quarter, with signs that the downturn is more likely to intensify further in coming months rather than ease," said Markit's chief economist Chris Williamson.

The bleak PMI survey is likely to add to the pressure on the European Central Bank to deliver another interest rate cut or other monetary support to help shore up economic confidence in the currency bloc.

ECB President Mario Draghi said at the start of the month that the Frankfurt-based bank stood "ready to act" to boost the recession-hit eurozone.

"On balance, we now think that the ECB will cut the (benchmark) refinancing rate by 25 basis points within the next two months," said Marco Valli, chief eurozone economist with the Italian bank UniCredit.

A 25-basis-point reduction would bring borrowing costs down to an historic low of 0.50 per cent.

A small increase in the PMI's services component for April was offset by a decline in the gauge measuring the mood in the manufacturing sector.

The slump to a four-month low in the PMI for the manufacturing sector are likely to dash hopes of exports helping to lead the currency bloc out of recession in the coming months.

Underscoring the continued weakness in the 17-member eurozone was a fall in the PMI for the region's biggest economy, Germany.

The composite PMI for the country slipped below the 50-point threshold for the first time since November last year, indicating that its economy has tumbled back into contractionary territory.

"The renewed decline in Germany will also raise fears that the region's largest growth engine has moved into reverse, thereby acting as a drag on the region at the same time as particularly steep downturns persist in France, Italy and Spain," said Williamson.

There were, however, more mixed signals out of the region's second-biggest economy, France.

The composite PMI for France rose to from 41.9 in March to reach a four-month high of 44.2 this month. Markit only breaks out readings for Germany and France.

But its latest survey shows France's economic performance falling almost into line with other weaker eurozone economies.

"Accelerated job shedding and an ongoing squeeze on output prices also highlight the pressures facing firms (in France) amid a tough economic backdrop," said senior Markit economist Jack Kennedy. "It still appears to be a difficult slog that lies ahead."

This grim assessment was also borne out by France's latest business confidence survey, which was also released Tuesday by the Paris-based statistics office, INSEE.

It showed manufacturing confidence falling from 91 points in March to 88 in April - its lowest level since October last year.


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Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH


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