Eurozone business slump accelerates

2012-10-24 12:36

Brussels - Eurozone private sector business activity slumped deeper into the mire in October, falling at its fastest rate since June 2009 to 40-month lows, a closely watched survey showed on Wednesday.

The Composite Purchasing Managers Index (PMI), a survey of 5 000 eurozone businesses compiled by the Markit research firm, fell to 45.8 points in October from 46.1 in September.

The index is a leading indicator and any reading below 50 indicates a contraction in activity, with the eurozone getting off to a bad start for the fourth quarter as the debt crisis continues to undermine growth and jobs.

The preliminary data showed the Services sector PMI at 46.2 points in October, edging up from 46.1 in September while the Manufacturing sector fell very sharply to 45.3 from 46.1.

Markit said eurozone firms "continued to cut employment, adjusting capacity down in response to lower levels of demand for goods and services.

"Further declines in activity over the coming year were signalled by another deterioration in business optimism in the service sector, which also suggests that employment looks likely to be cut again," it added.

Markit chief economist Chris Williamson said the data suggested the eurozone economy was shrinking at a rate of 0.5% on a quarterly basis, more than enough to count the eurozone as deep in recession.

"While gross domestic product may decline only modestly in the third quarter, a steeper fall looks to be on the cards for the fourth quarter," Williamson said.

"The financial markets may have cheered the positive developments from policymakers in seeking to resolve the region’s debt crisis ... but business appears to have been less impressed.

"Sentiment about prospects for the year ahead are now the gloomiest since early-2009, when the post-Lehman Brothers crisis was in full swing," he said.

Analysts said the survey findings were cause for concern, with the eurozone falling deeper into recession.

The figures "worryingly indicate that the eurozone downturn is, if anything, deepening rather than easing. Consequently, it already looks highly likely that the eurozone is headed for further economic contraction in the fourth quarter," said Howard Archer of IHS Global insight.

Archer noted how austerity policies implemented to combat the debt crisis were hitting domestic demand while muted global growth undercut exports.

The European Central Bank was now likely to cut its benchmark interest rate to 0.50% from 0.75% in December in an effort to boost growth, he said, although it could be delayed until early 2013.