Euro-Area Manufacturing, Services Shrink
Euro-Area Manufacturing Contracts More Than Estimated
Gianluca Colla/Bloomberg
An employee stitches the sole of an Oliver Sweeney shoe at a factory in Corridonia.
An employee stitches the sole of an Oliver Sweeney shoe at a factory in Corridonia. Photographer: Gianluca Colla/Bloomberg
Europe’s services and manufacturing output indicator fell the most in three years in October, adding to recession signs as government leaders struggle to contain the region’s worsening fiscal crisis.
A euro-area composite index based on a survey of purchasing managers in both industries fell to 46.5 from 49.1 in September, London-based Markit Economics said today. That’s a 28-month low, the sharpest drop since November 2008 and below the estimate of 47.2 on Oct. 24. A reading below 50 indicates contraction.
The European Central Bank unexpectedly cut its benchmark interest rate by a quarter-point to 1.25 percent yesterday and left the door open for further moves as the debt crisis drags the euro-area economy closer to a recession. Group of 20 leaders meeting in Cannes, France, pushed European authorities to flesh out and enact a week-old rescue plan as Greece’s debt-ridden government teeters on the brink of collapse.
“The surveys fuel euro-zone recession fears and provide ample justification for the ECB’s interest-rate cut,” said Howard Archer, chief European economist at IHS Global Insight in London. They “pile pressure on the ECB to cut interest rates further in the near term.”
The euro was little changed after the report, trading at $1.3834 at 10:53 a.m. in Frankfurt.
‘Mild Recession’
The euro-area’s services indicator also dropped more than previously estimated in October, falling to 46.4 from 48.8 the previous month, today’s report showed. That’s the fastest pace since July 2009. The manufacturing gauge slipped to 47.1 from 48.5, indicating a contraction for a third straight month.
ECB President Mario Draghi said yesterday the turmoil is damping growth in the 17-nation currency area and predicted a “mild recession.” The central bank has been forced to purchase government bonds and extend its use of unconventional tools to help fight the crisis from spreading to larger nations.
Adding to signs of a deepening economic slump, German investor confidence dropped to the lowest in almost three years in October and European economic sentiment also declined. Euro- region unemployment unexpectedly increased in September, suggesting companies are under increasing pressure to cut costs.
A gauge of companies’ new business dropped at the quickest pace since June 2009, Markit said. Manufacturers and service companies both reported a drop in new orders, with an indicator of output prices declining for a second month in October.
‘Hesitant Market’
Alcatel-Lucent SA, France’s largest telecommunications equipment supplier, today cut its profit forecast after third- quarter revenue missed analysts’ estimates. Europe is a “hesitant market” and “uncertainties are bigger than we anticipated,” Chief Executive Officer Ben Verwaayen said.
Commerzbank AG, Germany’s second-largest lender, swung to a third-quarter loss after writing down the value of its Greek government debt holdings and said it will miss a profit target next year.
“The European sovereign debt crisis deepened in the third quarter,” CEO Martin Blessing said. “The uncertainty on the financial markets triggered by the sovereign debt crisis, together with the austerity policies in a number of European countries, is likely to exert an increasing drag on the real economy.”
‘Worrying Pace’
Today’s report “suggests that the euro area contracted at a worrying pace at the start of the final quarter,” Chris Williamson, chief economist at Markit, said in the statement. “There are no bright spots among the large euro nations.”
Athens will remain a focal point for policy makers and investors today as Prime Minister George Papandreou faces a confidence vote in parliament. He yanked his planned referendum on his country’s bailout yesterday after it split his party, roiled financial markets and drew warnings from euro leaders that it may cost Greece its place in the single-currency club.
The Organization for Economic Cooperation and Development on Oct. 31 slashed its euro-region growth projections for 2011 and 2012 to 1.6 percent and 0.3 percent, respectively, from 2 percent in both years. The Paris-based group also called on G-20 leaders to “act decisively to restore confidence.”
Williamson said the economies of Italy, France and Spain may already be shrinking, according to today’s indicators.
“Germany is now stagnating, denying the region of its main engine of growth, while France has joined Spain and Italy in decline,” he said. “Italy looks to be faring the worst, with the PMI signaling gross domestic product falling at a quarterly rate of above 1 percent.”
To contact the reporter on this story: Simone Meier at smeier@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
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