European services, manufacturing fall more than forecast

Updated: 2011-09-23 07:48

By Simone Meier (China Daily)

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ZURICH - Euro-area services and manufacturing output contracted for the first time in more than two years in September as the region's worsening debt crisis added to concerns that the economy could slide back into a recession.

A composite index based on a survey of purchasing managers in both industries fell below 50, indicating contraction, for the first time since July 2009, London-based Markit Economics said in an initial estimate on Thursday.

The index declined to 49.2 this month from 50.7 in August. Economists had forecast a drop to 49.8, according to the median of 17 estimates in a Bloomberg News survey.

Europe's economy is cooling as governments struggle to restore investor confidence in their ability to prevent a Greek default and stop the crisis from spreading.

Spanish and Italian government bond yields have surged to records and euro-area economic confidence slumped in August, leaving companies such as Daimler AG reliant on faster-growing markets.

The new figures "make grim reading and raise the specter of a renewed economic downturn," said Martin van Vliet, an economist at ING Groep NV in Amsterdam. "With ongoing fiscal austerity and political leaders still way behind the curve in terms of resolving the debt crisis, we cannot dismiss the risk of a full-blown recession."

'Virtual standstill'

The euro-area services indicator fell to 49.1 this month from 51.5 in August, Markit said. The manufacturing gauge decreased to 48.4 from 49.

Both indices dropped more than economists had forecast. In Germany, a gauge of manufacturing output declined to 50 from 50.9 in August, while the French indicator fell to 47.3 from 49.1 in the previous month.

The euro-area economy may fail to gather strength in the current quarter, expanding 0.2 percent from the previous three months, before cooling to 0.1 percent in the final quarter, the European Commission in Brussels forecast last week. It had previously projected growth of 0.4 percent for both periods.

Growth could come to a "virtual standstill" by year-end, European Economic and Monetary Commissioner Olli Rehn said on Sept 15. "The sovereign-debt crisis has worsened, and the financial-market turmoil is set to dampen the real economy."

In China, the world's second-largest economy, manufacturing may shrink for a third month in September after a preliminary index of purchasing managers released on Thursday showed measures of export orders and output declined.

US Federal Reserve policymakers on Wednesday indicated they are willing to do more to keep the world's largest economy from sliding into another recession.

Debt crisis

With leaders struggling to contain a worsening debt crisis, the European Central Bank (ECB) on Sept 8 kept borrowing costs at 1.5 percent and lowered its growth forecasts for this year and next. ECB President Jean-Claude Trichet said on that day that the economy is facing "intensified downside risks".

Italy's credit rating was cut this week by Standard & Poor's on concern that weakening economic growth and a "fragile" government mean the nation won't be able to cut the region's second-heaviest debt burden.

In Greece, officials are also struggling to restore investor confidence. Prime Minister George Papandreou said on Sept 10 that the country "will remain in the euro" and this "means difficult decisions".

"Greece's position is extremely precarious and any default would likely be very disorderly," Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin, said. "For the time being, Europe continues to urge Athens to meet its reform commitments, while the rest of the world hopes and prays that the strategy works."

German economy

The German economy, Europe's largest, has helped to offset the effect of tougher austerity measures in countries from Spain to Ireland as companies boost output and hiring to meet global export demand.

Bayerische Motoren Werke AG's factories are "working at full tilt", Chief Financial Officer Friedrich Eichiner told reporters on Sept 8. German rival Audi AG is hiring to increase car production.

Daimler, based in Stuttgart, Germany, said on Monday that it expects truck sales to grow helped by Chinese demand. The world's largest maker of heavy-duty vehicles forecasts its own truck sales to increase annually by about 14 percent helped by expansion in China, Russia and India, said Andreas Renschler, head of the Daimler Truck division.

The European market may grow 35 percent to 40 percent this year, with the United States expanding as much as 35 percent.

"The trend is unequivocally positive," Renschler told reporters on Monday. "By and large, signs we're getting from customers are encouraging."

Bloomberg News

(China Daily 09/23/2011 page17)


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