ECB president Draghi predicts eurozone to slip into 'mild recession'

ZURICH - European services and manufacturing output contracted for a third month in November as the worsening debt crisis pushed the region closer to a recession.

A eurozone composite index based on a survey of purchasing managers in both industries rose to 47.2 from 46.5 in October, London-based Markit Economics said in an initial estimate on Wednesday. Economists forecast a drop to 46.1, according to the median of 17 estimates in a Bloomberg News survey.

Europe's economy is cooling as governments deepen budget cuts just as global demand falters.

Infineon Technologies AG, Europe's second-largest maker of semiconductors, on Nov 16 forecast a steeper decline in full-year sales than analysts projected and European Central Bank (ECB) President Mario Draghi this month predicted a "mild recession". In China, manufacturing may contract this month by the most since March 2009.

"The composite PMI remains consistent with economic contraction," said Martin van Vliet, an economist at ING Groep NV in Amsterdam. "For now, it looks as if the eurozone economy is slipping into a mild recession rather than falling off a cliff."

Austerity measures

The 2-year-old debt crisis is forcing governments to implement tougher austerity measures across the region, undermining consumer demand and corporate spending. Deutsche Lufthansa AG said on Tuesday it will withdraw at least one-fifth of its cargo capacity in the first half of next year to counter an anticipated slowdown.

"There are savings we must make in some parts of the world," Philippe Varin, chief executive officer of PSA Peugeot Citroen, Europe's second-largest carmaker, said on Sunday.

The eurozone economy may expand just 0.5 percent in 2012 after growing 1.5 percent this year, the European Commission said on Nov 10.

It had previously forecast growth of 1.8 percent next year. The economy returned to growth after a yearlong recession in the third quarter of 2009.

Companies 'shaken'

Chris Williamson, chief economist at Markit, said in a statement that the eurozone economy will probably shrink about 0.6 percent in the current quarter.

"Companies are clearly shaken by the debt crisis and its growing impact on the real economy," Williamson said. "As feared earlier in the year, malaise has spread from the periphery to the core. Even Germany is stagnating."

A gauge of eurozone manufacturing dropped to 46.4 in November from 47.1 in the previous month, Markit said on Wednesday.

A measure of services rose to 47.8 from 46.4 in October. A gauge of new orders for goods and services slipped across the region, while a measure of employment signaled that companies put hiring plans on hold in November, according to the release.

ECB tools

"The threats to global economic growth" are increasing, Kion Group GmbH, the world's second-biggest maker of forklifts, said on Nov 14. "The sovereign-debt crisis has heavily impacted global financial markets and is showing the first tangible signs of affecting the real economy."

The ECB on Nov 3 unexpectedly lowered its benchmark interest rate by 25 basis points to 1.25 percent to help contain the crisis.

While the central bank has extended its use of unconventional tools, it has resisted calls to combat the turmoil by boosting its purchases of government bonds.

Nobel Prize winner Joseph Stiglitz told Francine Lacqua on Bloomberg Television on Wednesday that what has been done in Europe is "just too little and too late" and he called on the ECB "to take a larger role".

"There's a significant likelihood that Europe will be facing a recession, there are already signs of economic downturn," he said. "The driving force is the austerity that's spreading around Europe and America. European leaders say they're committed to preserving the euro but they're reluctant to do what is necessary."

Bloomberg News