The
Euro Area Economy Is Deteriorating At A Disastrous Pace
4
May, 2012
In
case you forgot how quickly the euro area economy was deteriorating,
here's a look at the latest reading of composite PMI for the
17-country region.
That
index fell to 46.7 this month, even worse than an earlier flash
reading of 47.4.
Perhaps
most concerning is that the effects of the European Central Bank's
two three-year long-term refinancing operations appears to already be
fading, as business activity rebounded slightly at the start of 2012
before declining sharply later in the year.
The
idea that economic momentum driven by the LTROs has faded already
stands in contrast to statements by ECB president Mario Draghi
yesterday, who told reporters that the effects of the LTRO had not
yet been felt in the markets.
Check
out that PMI data for the eurozone:
Data
Deepen Euro-Zone Gloom
Private
sector economic activity in the euro-zone declined at a faster pace
than expected in April, according to surveys of purchasing managers
at manufacturers and service providers
WSJ,
4
May, 2012
That
suggests that an economic contraction that began in the final three
months of last year, and likely persisted in the first quarter of
this year, has continued as further budget cuts are implemented in
many of the currency area's members.
"It
appears that the euro zone is headed for a third successive quarter
of gross domestic product contraction in the second quarter of 2012,"
said Howard Archer, chief euro zone and U.K. economist for IHS Global
Insight. "Indeed, there is a growing risk that the rate of euro
zone contraction could actually deepen in the second quarter."
Despite
the economy's weakness, European Central Bank President Mario Draghi
Thursday made it clear that he sees it as the responsibility of
governments to revive growth, which he acknowledged would take time.
The
composite purchasing managers' index, a measure of private-sector
activity based on surveys of 4,500 manufacturing and services firms,
slumped to 46.7 in April from 49.1 in March. That was the lowest
level since October last year, when an intensification of the debt
crisis threatened to lead to a credit crunch, before the European
Central Bank decided to pump more than €1 trillion ($1.315
trillion) in cheap funding into the financial system.
A
reading below the break-even 50 mark indicates activity is
contracting.
Economists
were expecting no change from the preliminary April reading of 47.4,
according to a survey. The preliminary figures released on April 23
was based on 85% of usual monthly survey replies.
"The
final euro zone PMI came in well below the flash reading as business
conditions deteriorated at a faster rate towards the end of the
month," said Chris Williamson, Markit's chief economist.
"The
survey suggests that the economy was contracting at a quarterly rate
of around 0.5% in April, extending the downturn into a third
successive quarter," he said.
The
purchasing managers' index for the services sector dropped to 46.9
from 49.2 in March—again below the preliminary estimate of 47.9.
The
euro-zone's services sector lagged behind its global counterparts.
The equivalent US measure—the nonmanufacturing ISM—signaled a
continued expansion in April with the index at 53.5, although it was
lower than March when the index was 56.
The
HSBC China services PMI, meanwhile pointed to renewed growth, rising
to 51.4 in April from March's 49.9.
Within
the euro zone, the services PMIs for Spain, Italy and France all
suffered steep declines in April from March. A sharp drop in new
business was evident across all three countries. Fewer orders led to
a drop in business confidence and job cuts, particularly in Spain and
Italy, the surveys showed.
Germany's
services sector continued to expand, although at 52.2, the final
services PMI was weaker than the preliminary reading of 52.6 and
barely changed from 52.1 in March.
But
even in the euro zone's strongest economy, new business fell for the
first time in five months, leading service providers to cut jobs for
the first time since January.
"April's
survey suggests the prospect of Germany returning to recession in
2012 is resting on an even thinner knife edge," said Tim Moore,
senior economist at Markit.
The
results of the survey of manufacturing firms released Wednesday
showed activity in that sector is at the weakest PMI level since June
2009.
The
euro-zone economy contracted by 0.3% in the fourth quarter of last
year, and most recent data suggests it shrank again in the first
quarter of this year. Many economists regard two quarters of
contraction as indicating an economy is in recession.
There
was one chink of light in figures also released Friday that showed a
surprise rise in retail sales in March, which points to a pickup in
the first quarter as a whole.
The
European Union's statistics agency Eurostat said the volume of retail
sales rose by 0.3% from February, but were down 0.2% from March 2011.
The
pickup was largely driven by a 0.8% rise in German retail sales and a
0.9% rise in French sales.
Elsewhere,
consumers spent less freely. Sales fell by 0.5% in Spain and by 2.2%
in Portugal, both economies in which governments have embarked on
tough austerity programs. Eurostat didn't give figures for Greece and
Italy, which are also pursuing austerity, while sales in Ireland were
unchanged.
But
it is unlikely that the March rise heralds a sustained period of
higher consumer spending.
Euro-zone
consumers have been squeezed by a steady rise in unemployment—which
matched a record high in March—slow wage growth, and rising energy
prices, added to which is the uncertainty created by the currency
area's fiscal crisis. Recent surveys have pointed to a decline in
consumer confidence, which usually presages a decline in consumer
spending.
No comments:
Post a Comment
Note: only a member of this blog may post a comment.