Sharp output slump sparks new fears of recession in eurozone
JUST as hopes emerged of a partial settlement to Europe's debt crisis when leaders gather tomorrow, new figures published yesterday showed that the continent's services and manufacturing output contracted at the fastest pace in more than two years this month. The figures added to fears that Europe is heading back into recession.
Business surveys of the eurozone's manufacturing and services sectors showed both parts of the economy tipped further into decline this month, suggesting the bloc's economy is in serious danger of lurching from stagnation into outright recession.
"This is a miserable report, highlighting the fact that the eurozone is falling into recession again," said Peter Vanden Houte, an economist at ING in Brussels. "The snail-like progress in the resolution of the European debt crisis is unlikely to alter this picture soon."
Shrinking order books and plummeting confidence sent eurozone factories into contraction for the third month in a row, and service sector companies for a second month.
The Eurozone Services Purchasing Managers' Index (PMI), which is compiled by Markit for Reuters and measures business activity at thousands of firms from banks to restaurants, sank to 47.2 this month from September's 48.8, well below a Reuters consensus of 48.5.
In fact, none of the 35 economists polled by Reuters thought this preliminary reading of the services index would fall so far below the 50 mark that divides growth and contraction.
"Most indicators seem to suggest it is going to get worse not better in the coming months. So there is a significant chance of a contraction in the fourth quarter," said Chris Williamson, chief economist at survey compiler Markit.
The services new business sub-index fell to 46.2 in October from 47.1 in September, its lowest reading since July 2009 when the eurozone was still escaping the last recession.
German manufacturing contracted this month for the first time in two years, according to individual country PMIs released earlier yesterday. The October survey for Ireland will be released next week.
The service sector rebounded unexpectedly but that was perhaps the only bright spot among this month's surveys.