News Column

Recession Loosening up in Eurozone: Surveys

June 24, 2013
eurozone headquarters

The eurozone's recession appears to be easing, with the smallest downturn in business activity in 15 months recorded in June, according to a key economic indicator released Thursday.

The London-based research group Markit said its closely watched Purchasing Managers' Index (PMI) for the region's manufacturing and service sectors rose for a third consecutive month to 48.9 in June, from 47.7 points in May.

Meanwhile, consumer confidence in Europe rose for the seventh consecutive month in June, according to a survey released by the European Commission.

Their index measuring confidence among households in the 17-member eurozone shot up to minus 18.8 points this month from minus 21.9 in May, the bloc's executive said, beating analysts' expectations of a more modest rise to minus 21.5.

Consumer sentiment in the broader 27-member European Union also rose to minus 17.5 in June from minus 20.2 last month, the commission said.

Markit's preliminary June index, which is based on a survey of about 5,000 companies, was higher than the 48.0 points forecast by analysts.

But the index failed to reach 50, the cutoff point below which economies are deemed to be in contraction.

Markit warned that, despite showing the smallest slowdown in activity since March 2012, the figure suggested that "the eurozone's recession will have dragged into a seventh successive quarter."

But Markit chief economist Chris Williamson was more optimistic about the future, saying: "At this rate, the region could stabilize in the third quarter and return to growth in the fourth quarter."

"It is particularly welcome news that the rate of decline outside of France and Germany has slowed sharply in recent months, and is now the weakest for two years," Williamson added.

Analysts expressed cautious optimism at the data.

"Today's PMI figures clearly reinforce hopes that the eurozone economy may soon embark on recovery and hence reduce the prospect of further monetary easing from the ECB (European Central Bank)," said Martin van Vliet, an analyst with ING Bank.

At the same time, he warned that "any further recovery later in the year is likely to be very slow and bumpy."

"The economy remains in a fragile condition and there is certainly a risk that it could relapse later this year," warned European economist Ben May of the Capital Economics research group.

The figures showed a strongly divergent trend between the eurozone's two largest members, Markit wrote, with Germany seeing output rise for the second consecutive month, while France "suffered another steep contraction."

However Frank Hansen of Danske Bank said the French figures were "well above" expectations.

A German decline in the manufacturing PMI was a "major disappointment," Hansen wrote, adding that this was offset however against an increase in the service industry, and indications that domestic demand was picking up.

Marco Valli, the chief eurozone economist at UniCredit Bank, warned that recent flooding in Germany could have a negative impact on the final June figures.

Overall, Valli said that less austerity and lower inflation was allowing a gradual recovery in domestic demand, but warned that global developments could affect the eurozone's recovery.

"The external environment remains challenging, with weaker growth developments in China and some other emerging countries being broadly offset by improving dynamics in the US and Japan," Valli wrote.

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Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH

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