Eurozone business slump unexpectedly worsens in April

http://images.thenews.com.pk/24-04-2012/ethenews/e-104633.htm

Andy Bruce

LONDON: The Eurozone’s private sector slump deepened in April at a faster pace than any economist polled by Reuters predicted, dampening hopes the region will emerge from recession soon, surveys showed on Monday.

Shrinking order books and rising job losses hobbled both manufacturing and service sector businesses, according to Markit’s purchasing managers’ indexes (PMIs), which have a good record of tracking economic growth.

April’s PMI for the Eurozone’s dominant service sector fell to 47.9 from 49.2 in March - a five-month low and worse than any forecast in a Reuters poll of more than 40 economists which projected a rise to 49.3.

The services PMI slipped further below the 50 threshold that divides growth from contraction in April, while factories endured their worst month since June 2009.

“We were saying last month that we probably had a second consecutive quarter of decline (in business activity), making a recession - now that’s extending into a third quarter,” said Chris Williamson, chief economist at PMI compiler Markit.

Order books brought no joy for services companies in April, with the services new business index slumping to a six-month low of 45.4, from 47.6.

“There are no real drivers of growth here, which suggests that although the overall rate of decline is modest at the moment, we could see it continue to worsen in coming months.”

Economists polled by Reuters last week estimated the Eurozone economy shrank 0.2 percent in the first quarter, and will contract 0.1 percent this quarter.

Williamson also drew attention to the very severe contraction taking place in Eurozone economies outside France and Germany, inevitably raising questions about the effectiveness of harsh austerity measures.

“Tax revenues are going to be low, and unemployment is going to carry on rising, so are these deficit fighting policies working?” he said

The Eurozone’s manufacturing PMI also came in below all forecasts from economists, plumbing 46.0 in April - its lowest reading since June 2009 and down sharply from 47.7 in March.

On the plus side, the factory PMIs suggested inflation pressures are easing following a rise associated with oil prices earlier in the year, with the output price index hitting a six-month low of 50.5, from 51.2 in March.

“It does suggest that policymakers ought to be more concerned about the growth outlook than the inflation outlook at the moment. Demand is so weak that companies just can’t push through price rises,” said Williamson.

The manufacturing output index, which feeds into the broader composite PMI that gauges the private sector as a whole, slipped to 46.4 from 48.7.

Given the profound weakness across factories and service sector businesses, the composite PMI also came in below all expectations, falling to 47.4 from 49.1 in March.

Worryingly, the survey showed the jobs outlook has darkened markedly this month. The composite employment index wilted to its lowest since February 2010 at 48.3, compared to 49.2 in March. “That’s certainly suggesting that companies are battening down the hatches,” said Williamson.