London - All of the
eurozone’s major economies are now in various states of decline, according to
business surveys that suggested even Germany is no longer immune to the tremors
emanating from the likes of Greece and Spain.
Tuesday’s purchasing managers' indexes (PMIs) showed the euro
area’s vast private economy shrank in May at the fastest pace in nearly three
years, with company order books collapsing.
Markit’s Eurozone Composite PMI, which surveys thousands of
companies every month, fell to 46.0 in May from April’s 46.7, its lowest
reading since June 2009 and spending its fourth month below the 50 mark that
divides growth and contraction.
It was little changed from a preliminary reading.
Of particular note was the suggestion Germany is no longer
generating the sort of economic growth that kept the wider eurozone out of
recession in the first quarter, with businesses seeing a mild downturn last
The PMIs have a good record of tracking economic growth and
countered claims from European Central Bank (ECB) president Mario Draghi that he
expects a recovery gradually over the course of the year.
“Based on these numbers, it would not be surprising to see
GDP (gross domestic product) for the (eurozone) contract by 0.5% in the second quarter, though an even
steeper decline could be seen if the June data disappoint,” said Chris
Williamson, chief economist at survey compiler Markit.
“Companies report business activity to have been hit by
heightened political and economic uncertainty, which has exacerbated already
weak demand both in the euro area and further afield.”
Greece, which unleashed the financial maelstrom that has ravaged
the bloc, is due for a crucial second election in three weeks that may
determine whether it remains a member of the currency union.
With stock markets in decline and safe haven government
bonds in the ascendant, fears about the eurozone economy prompted a sharp fall
in new business orders.
The composite PMI’s new business index last month slumped to
44.6 from 44.8 in April, its lowest reading since June 2009.
While showing a mild contraction in German business
activity, the surveys brought no good news from the eurozone’s more fragile
“Italy seems to be faring the worst, with its PMI consistent
with GDP falling by more than 1% in the second quarter,” said Williamson.
“However, declines could also exceed 0.5% in both France and
The PMI for the services sector, which covers companies
ranging from banks to restaurants, declined slightly to 46.7 in May from 46.9
in April - its lowest reading since October last year.
It was a marginal
improvement on a preliminary reading of 46.5.
It showed prices charged to consumers declined for a sixth
straight month, suggesting ECB policymakers may be able to worry less about the
threat of high inflation.
Indeed, while most economists still think the ECB will hold
interest rates for a long time, more than a third polled by Reuters last week
were convinced it will soon cut interest rates below their present record low
of 1.0% to help the economy.