Eurozone recession signals mounting

AP News
Posted: Nov 23, 2011 7:00 AM
Eurozone recession signals mounting

Any hopes that the 17-country eurozone will avoid sliding back into recession in the wake of a debt crisis that's shown alarming signs of spreading to the bigger economies appeared to have been dashed Wednesday.

A couple of indicators show that the eurozone economy is in deep trouble and that the debt crisis is denting confidence so badly that a recession looks almost inevitable. Figures last week showed that the eurozone only narrowly avoided contracting in the third quarter, growing by only 0.2 percent during the period.

The sense of an impending recession was evident in the findings of a closely watched survey from financial information company Markit. Its monthly survey showed that the eurozone contracted for the third month running in November and that the deteriorating economic picture is not just confined to debt-stressed countries such as Greece.

Though its monthly composite purchasing managers index _ a broad gauge of business activity _ rose to 47.2 in November from 46.5, it remains below the 50 mark, the threshold between expansion and contraction.

Markit said Wednesday's survey suggests that the eurozone is contracting at a quarterly rate of 0.6 percent in the fourth quarter and that the problems are increasingly spreading to Europe's two biggest economies, Germany and France.

"As feared earlier in the year, malaise has spread from the periphery to the core," said Chris Williamson, Markit's chief economist. "Even Germany is stagnating and France contracting by around 0.5 percent."

Further grim news emerged with the shock announcement that eurozone industrial orders collapsed by a massive 6.4 percent in September from the previous month. Though this series of data is historically volatile _ one big Airbus order can cause big swings, for example _ the figures provide further uncomfortable reading for a political class battling to get a grip on the debt crisis.

"Looking ahead, the recent survey data point to a further deterioration in industrial sector conditions, and so today's news _ both in this orders report and in the earlier PMI surveys _ reinforces our expectation of an industrial sector recession," said James Ashley, an economist at RBC Capital Markets.

The euro unsurprisingly took a battering in the wake of the figures, plunging 0.9 percent to $1.3389.

Analysts said the figures are likely to pile the pressure on the European Central Bank to cut interest rates again, possibly as soon as next month. In November, it reversed recent policy, cutting its benchmark interest rate by a quarter of a percentage point to 1.25 percent amid mounting worries over the state of the eurozone economy.