European Services, Manufacturing Shrink for First Time Since 2009 on Debt
Europe Services, Manufacturing Shrink for 1st Time Since ’09
Balint Porneczi/Bloomberg
A construction worker uses a metal grinding machine at the new Daimler AG Mercedes-Benz car plant in Kecskemet, Hungary.
A construction worker uses a metal grinding machine at the new Daimler AG Mercedes-Benz car plant in Kecskemet, Hungary. Photographer: Balint Porneczi/Bloomberg
Europe Services, Manufacturing Shrink for 1st Time Since ’09
Guenter Schiffmann/Bloomberg
The German economy, Europe’s largest, has helped to offset the impact of tougher austerity measures in countries from Spain to Ireland as companies boost output and hiring to meet global export demand.
The German economy, Europe’s largest, has helped to offset the impact of tougher austerity measures in countries from Spain to Ireland as companies boost output and hiring to meet global export demand. Photographer: Guenter Schiffmann/Bloomberg
Euro-area services and manufacturing output shrank for the first time in more than two years in September as the region’s worsening debt crisis added to concerns that the economy could slide back into a recession.
A composite index based on a survey of purchasing managers in both industries fell below 50, indicating contraction, for the first time since July 2009, London-based Markit Economics said in an initial estimate today. The index fell to 49.2 this month from 50.7 in August, a deeper slide than the drop to 49.8 that economists had forecast, according to the median of 17 estimates in a Bloomberg survey.
Europe’s economy is cooling as governments struggle to restore investor confidence in their ability to prevent a Greek default and stop the crisis from spreading. Spanish and Italian government bond yields have surged to euro-era records and euro- area economic confidence slumped in August, leaving companies such as Daimler AG (DAI) reliant on faster-growing markets.
Today’s figures “make grim reading and raise the specter of a renewed economic downturn,” said Martin van Vliet, an economist at ING Groep NV in Amsterdam. “With ongoing fiscal austerity and political leaders still way behind the curve in terms of resolving the debt crisis, we cannot dismiss the risk of a full-blown recession.”
The euro was lower against the dollar after the data, trading at $1.3475 at 11:18 a.m. in Frankfurt, down 0.9 percent on the day.
‘Virtual Standstill’
The euro-area services indicator fell to 49.1 this month from 51.5 in August, Markit said. The manufacturing gauge decreased to 48.4 from 49. Both indexes dropped more than economists had forecast. In Germany, a gauge of manufacturing output declined to 50 from 50.9 in August, while the French indicator fell to 47.3 from 49.1 in the previous month.
The euro-area economy may fail to gather strength in the current quarter, expanding 0.2 percent from the previous three months, before cooling to 0.1 percent in the final quarter, the European Commission in Brussels forecast last week. It had previously projected growth of 0.4 percent for both periods.
Growth could come to a “virtual standstill” by year end, European Economic and Monetary Commissioner Olli Rehn said on Sept. 15. “The sovereign-debt crisis has worsened, and the financial-market turmoil is set to dampen the real economy.”
Industrial Orders
Adding to signs of slowdown, euro-region industrial orders dropped 2.1 percent in July from the previous month, the European Union’s statistics office said today. That’s the biggest drop since September 2010. German orders fell 3 percent, while France reported an 11.2 percent slump.
“The euro-zone economy probably stagnated in the third quarter, having slipped into contraction for the first time in just over two years in September,” Chris Williamson, chief economist at Markit, said in the statement. “Germany and France both saw growth rates deteriorate to near-stagnation in September, while the rest of the single-currency area suffered the steepest contraction for over two years.”
In China, the world’s second-largest economy, manufacturing may shrink for a third month in September after a preliminary index of purchasing managers released today showed measures of export orders and output declined. U.S. Federal Reserve policy makers yesterday indicated they are willing to do more to keep the world’s biggest economy from sliding into another recession.
Debt Crisis
With leaders struggling to contain a worsening debt crisis, the European Central Bank on Sept. 8 kept borrowing costs at 1.5 percent and lowered its growth forecasts for this year and next. President Jean-Claude Trichet said on that day that the economy is facing “intensified downside risks.”
Italy’s credit rating was cut this week by Standard & Poor’s on concern that weakening economic growth and a “fragile” government mean the nation won’t be able to cut the region’s second-heaviest debt burden. In Greece, officials are also struggling to restore investor confidence. Prime Minister George Papandreou said on Sept. 10 that the country “will remain in the euro” and this “means difficult decisions.”
“Greece’s position is extremely precarious and any default would likely be very disorderly,” Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin, said in an e-mailed statement before today’s report. “For the time being, Europe continues to urge Athens to meet its reform commitments, while the rest of the world hopes and prays that the strategy works.”
German Economy
The German economy, Europe’s largest, has helped to offset the impact of tougher austerity measures in countries from Spain to Ireland as companies boost output and hiring to meet global export demand. Bayerische Motoren Werke AG (BMW)’s factories are “working at full tilt,” Chief Financial Officer Friedrich Eichiner told reporters on Sept. 8. German rival Audi AG is hiring staff to increase car production.
Daimler, based in Stuttgart, Germany, said on Sept. 19 that it expects truck sales to grow helped by Chinese demand. The world’s largest maker of heavy-duty vehicles forecasts its own truck sales to increase annually by about 14 percent helped by expansion in China, Russia and India, said Andreas Renschler, head of the Daimler Truck division. The European market may grow 35 percent to 40 percent this year, with the U.S. expanding as much as 35 percent.
“The trend is unequivocally positive,” Renschler told reporters on Sept. 19. “By and large, signs we’re getting from customers are encouraging.”
Waning Confidence
Prada SpA, the Italian luxury goods maker that had Hong Kong’s biggest initial public offering this year, said on Sept. 19 that first-half profit jumped 74 percent from a year earlier led by surging Asian sales. Pernod-Ricard SA (RI), Europe’s second- biggest distiller, earlier this month reported annual profit growth in line with analyst estimates, as strong sales in emerging markets offset tough conditions in Spain and Greece.
A gauge measuring new orders in the euro region dropped for a second month in September, with manufacturers reporting a “sharp deterioration in demand,” Markit said. Manufacturing export orders fell for a third straight month and companies reported the weakest rise in employment since Oct. 2010.
Euro-region consumers probably also grew more pessimistic in September, with a gauge dropping to the lowest in almost two years, according to a Bloomberg survey of economists. The European Commission will release an initial estimate of household confidence at 4 p.m. today.
“There are no real growth impulses at the moment,” said Heinrich Bayer, an economist at Deutsche Postbank in Bonn, Germany. “Uncertainty is extremely high and people tend to focus on downward risks. The next couple of months will be very, very difficult.”
To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
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