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Euro zone downturn eases slightly

Dec 05 2012 13:55

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Eurozone fallout

 
London - The euro zone's economic slump was a little less pronounced in November than previously thought, although there are few signs the region will emerge from recession any time soon, business surveys showed on Wednesday.

Markit's Euro zone Composite PMI, which gauges business activity across thousands of companies, rose in November to 46.5 from 45.7 in October - markedly higher than the preliminary reading of 45.8 reported 10 days ago.

The PMI has lingered below the 50 mark that divides growth and contraction for all but one of the last 15 months and with no economic stimulus in the pipeline, there is little reason to expect a rebound.

Survey compiler Markit said there was no single reason for the upward revision to the PMI from the mid-month flash estimate, which could simply be down to a stronger end to the month for businesses.

France, Spain and Italy were the biggest drags on the euro zone economy through last month. Germany performed better.

Overall, however, the survey still pointed to a deepening recession this quarter, following the economy's 0.1% decline in the third quarter.

"The (upward revision) is good news as it might be a sign that activity has bottomed out in Q3," said Annalisa Piazza, economist at Newedge Strategy in London.

"Nevertheless, we see no signs of improvement that suggest that the EMU economy might recover any time soon. Further contraction in GDP remains our baseline scenario at least until Q1 2013."

The euro hit a seven-week high on Wednesday and European shares continued their recent rally, although that was mainly due to comments from China's new leader which boosted expectations for global growth.

Monday's manufacturing PMI's told a similar story to Wednesday's composite and services numbers.

The composite new orders index saw a sharp upward revision to 45.0 from 44.1 in the preliminary data but still showed company order books declining at a fast rate.

Service sector businesses like banks, hotels and restaurants that account for the vast bulk of the euro zone's private economy, also saw activity decline at the slowest rate in three months.

The final services PMI was revised up a full point from the flash reading, to 46.7 and compared with October's 46.0.

Prices charged for products fell again in November, at a similar rate to the previous month, giving further weight to the view that inflation would pose little impediment to the European Central Bank if it wanted to further ease monetary policy.

The ECB ends its monthly policy meeting on Thursday. While only a handful of economists polled by Reuters think it will cut interest rates at the meeting, overall they are split on whether the bank will do so early next year.

"The improvement in the services sector purchasing managers' survey further reduces the likelihood that the ECB will cut interest rates on Thursday," said Howard Archer, chief UK and European economist at IHS Global Insight.

"Nevertheless, we believe a cut from 0.75% to 0.50% remains likely in the early months of 2013 as the euro zone continues to struggle to grow and underlying inflationary pressures are muted."

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