Euro zone downturn gathers pace in October



REUTERS

Published — Tuesday 6 November 2012

Last update 6 November 2012 11:27 pm

| نسخة PDF Print News | A A

LONDON: The fourth quarter has so far brought no improvement in the fortunes of most of Europe's economies, which now risk shrinking more than previously expected, gloomy data showed yesterday.
Purchasing managers indexes (PMIs), which gauge the activity of thousands of companies worldwide, showed euro zone businesses endured their worst month in October since June 2009, with little hope of a turnaround coming soon.
The euro zone relies heavily on Germany, its largest economy, to generate growth.
Business activity there shrank at faster pace last month and new data show industrial orders in September plummeted at a far faster rate than expected.
PMI compiler Markit said its latest survey was consistent with the euro zone economy shrinking at a quarterly rate of around 0.5 percent.
If the PMIs fail to improve for November and December, the euro zone economy could easily face a hefty contraction in the fourth quarter rather than the stagnation projected by economists polled by Reuters two weeks ago.
"Given the stabilization in financial markets, and in consumer sentiment indicators in some countries, we thought perhaps you would see some stabilization in the PMIs as well," said Janet Henry, chief European economist at HSBC.
"What's disappointing about the Q4 data is the weakness reflected in the core euro zone indicators — the French and German PMIs."
German industrial orders data for September only added to the sense of gloom with a 3.3 percent month-on-month decline, far worse than the 0.5 percent consensus fall in a Reuters poll of 38 economists.
While the data series is notoriously volatile, it bodes poorly for industrial production data due today.
"This will add to concerns within financial markets that the global trade cycle is weakening, and certainly suggests momentum going into the fourth quarter is fairly weak," said Nick Matthews, European economist at Nomura.
British industrial output also fell more sharply than expected in September, data showed yesterday, reinforcing fears an incipient recovery will struggle to gather pace.
Britain's services PMIs were released on Monday, and suggested the same.
Markit's Eurozone Composite PMI fell in October to 45.7 from 46.1 in September, down slightly from a preliminary reading of 45.8 two weeks ago and marking its ninth consecutive month below the 50 mark dividing growth from contraction.
The survey will do little to alter the view of a majority of economists that the European Central Bank will trim interest rates to a new record low of 0.5 percent, although probably early next year rather than this Thursday.
"Sentiment is still being hit hard as companies worry about the dual impact of weak domestic demand and a slowing global economy," said Rob Dobson, senior economist at PMI compiler Markit.
Surveys from Asia and the United States released on Monday suggested the euro zone will remain the global economy's principal laggard going into 2013.
But there were two bright spots in yesterday's PMI data. The Irish survey rebounded strongly in October and the Italian services PMI, while still showing businesses are struggling, shot above the highest forecast from economists.
"It's not all really bad news, but it's all consistent with a contraction in the real economy. And that's not what you want when you've got really high debt levels," said HSBC's Henry.
That applies particularly to Spain, the euro zone's No.4 economy, as its services sector shrank for a 16th straight month. Most say it's only a matter of time, likely before the end of the year, that Spain asks for a full sovereign bailout.
The European Commission has set dire economic forecasts for Spain until 2014, a newspaper reported yesterday, shooting down the targets set out by Madrid and potentially pushing it closer to seeking euro zone aid.

What's happening around Saudi Arabia

JEDDAH: Jeddah police have closed all entry points into Makkah to prevent undocumented pilgrims from entering the holy city during this year’s Haj, in a bid to prevent overcrowding that could lead to health and safety problems.Officials have taken ac...
JEDDAH: The Bureau of Investigation and Public Prosecution recently charged three young men in the harassment case at the Jeddah corniche. A number of young men were arrested for harassing two Saudi girls at the corniche a day after Eid Al-Fitr.A vi...
JEDDAH: A total of 232 people injured in Sunday’s Aramco compound fire in Alkhobar have been discharged from hospitals here, the Eastern Province Health Department announced on Tuesday.Fifty-seven are still receiving treatment at four hospitals, with...
RIYADH: The Directorate of Education in Riyadh is keeping a close watch on schools, such as sanctioning health material and monitoring the health of staff and students, to prevent the spread of the MERS coronavirus among students. As a step in this...
RIYADH: The Ministry of Municipal and Rural Affairs has announced new legislation for the Dec. 12 elections, including fines and imprisonment for failure to disclose candidate financing, obstructing procedures or officials, and fraudulent activity.Vi...
JEDDAH: The low turnout of Saudis registering for the municipal elections is likely caused by the poor performance of previous councils, lack of a voting culture, inadequate understanding of the duties of councils, and the timing of the elections wit...

Stay Connected

Facebook