BERLIN/FRANKFURT: The euro zone’s recovery from a historic recession showed signs of flagging on Thursday, fleshing out warnings from top European policymakers of a still sluggish first half for 2010.
A closely watched survey of purchasing managers (PMI) showed the index measuring the activity of 2,000 euro zone firms fell for the first time since the height of the financial crisis last February.
European Central Bank President Jean-Claude Trichet stuck by his earlier predictions for a moderate but uncertain recovery, while governing council member Axel Weber warned of a slowing but still intact recovery in the bloc’s No.1 economy, Germany. “We expect the euro area economy to grow at a moderate pace in 2010,” Trichet said. “I should add, though, that the recovery process is likely to be uneven, and the outlook remains subject to high uncertainty.”
The euro zone economy returned to growth last year, with a quarterly expansion of 0.4 percent in the third quarter, after five consecutive quarters of contraction in the bloc’s worst downturn on record.
The rebound, driven by huge stimulus efforts from governments and the European Central Bank, was far quicker than economists had initially expected. But fears remain that it will falter once stimuli fade.
Consumer demand is seen as weak in the aftermath of the financial crisis, spooked by expectations that unemployment will continue to rise and that governments will have to hike taxes to pay the bill of stimulus and bank bail outs. A Reuters poll showed economists believe growth will slow to 0.3 percent in the first quarter from 0.4 percent in the last three months of last year — in line with ECB executive board member Juergen Stark’s prediction of a slight slowdown, but no outright stagnation.
Weber, who heads Germany’s Bundesbank, said he could not rule out a “sideways movement” in Germany’s economy in the first quarter, warning also that the euro zone might face the same problem. “We always said that the (euro zone) recovery will be muted, that we have a long period of a slow recovery ahead of us, that general picture needs no alteration,” he said.
The PMI showed the service sector expanding at a much slower pace than expected in January, outweighing a rebound in confidence and a rapid improvement in the manufacturing index.
Analysts said the dip was disappointment, but that it was not a fatal blow for the euro zone recovery.
“All in all, today’s PMIs are consistent with our view that growth momentum in 1H 2010 will be somewhat slower than in 2H 2009,” said UniCredit’s Marco Valli. “The ECB shares this view and therefore won’t be overly impressed by today’s report.”
Keren Collins, an analyst at Mitsubishi UFJ Securities International in London, wrote in a report that there was a “growing possibility” of the euro zone’s recovery lagging well behind that of the US, blaming an overvalued euro and lack of dynamism in the region’s economy.
It chimed with comments from the IMF earlier this week, that recovery in developed economies such as the euro zone’s would remain sluggish compared to emerging market counterparts.