Euro Services and Manufacturing Shrink

European services and manufacturing output contracted more than initially estimated in November, adding to signs of a deepening economic slump.

A euro-area composite index based on a survey of purchasing managers in both industries rose to 47 from 46.5 in October, London-based Markit Economics said today. That’s below an initial estimate of 47.2 on Nov. 23 and the third monthly reading below 50, indicating contraction.

Europe’s economy is edging toward a recession as governments toughen budget cuts to contain the debt crisis just as global export demand falters. A Chinese services index dropped last month, adding to signs of slowdown in the world’s second-largest economy. Beiersdorf AG (BEI), the maker of Nivea skin creams, said on Nov. 30 it plans to cut as many as 1,000 jobs.

The surveys “make grim reading and fuel concern that the euro zone is set for clear contraction in the fourth quarter and is sliding back into recession,” said Howard Archer, chief euro-region economist at IHS Global Insight in London. He forecasts the economy will shrink about 0.7 percent in 2012.

The euro traded at $1.3434 at 1:05 p.m. in Frankfurt, up 0.3 percent on the day. The Euro Stoxx 50 Index increased as much as 1.5 percent.

European Slowdown

A gauge of euro-region manufacturing dropped to 46.4 in November from 47.1 in the previous month. A measure of services rose to 47.5 from 46.4 in October, Markit said. That’s the third straight month of contraction. A gauge of new orders fell, with Italy and Spain showing the sharpest declines, Markit said.

The euro-region economy is showing signs of slowing after expanding just 0.2 percent in the third quarter. European economic confidence dropped more than economists forecast in November to the lowest in two years and German investors also grew more pessimistic. Euro-region unemployment unexpectedly increased in October to the highest in more than a decade.

Beiersdorf said last month that it is seeking to lower expenses by 90 million euros ($121 million) annually by 2014. Deutsche Bank AG, Germany’s largest bank, has said it will cut 500 jobs.

Companies may struggle to shore up their sales growth as global economies weaken. China’s official manufacturing PMI released last week fell to 49 in November from 50.4 in the previous month, the first contraction since February 2009. U.K. manufacturing output also shrank last month.

U.S. Economy

In the U.S., the world’s largest economy, service industries probably grew in November at the fastest pace in six months. The Institute for Supply Management’s index of non- manufacturing industries, which account for about 90 percent of the economy, probably rose to 53.8 last month from 52.9, according to a Bloomberg survey. The Tempe, Arizona-based group will release its report at 10 a.m. local time.

Euro-region gross domestic product probably fell 0.6 percent in the current quarter, said Chris Williamson, chief economist at Markit.

“The major euro-zone countries are all now contracting and face the risk of recession,” Williamson said in an e-mailed note. “Germany is currently seeing only a very modest downturn, but that looks set to worsen in coming months as its manufacturing sector -- the engine room of the region’s recovery -- is reporting a steep low of new orders.”

European leaders are seeking ways to restore investor confidence and prevent a state default as the crisis spreads from periphery nations to larger member states. A collapse of the euro would wipe 12 percent off the region’s gross domestic product in the following two years, ING Bank NV estimates.

‘Numerous Fronts’

Italian bonds rose, pushing the 10-year yield down by the most in almost four months, after Prime Minister Mario Monti announced 30 billion euros of austerity and growth measures to lower the nation’s debt load. Spanish 10-year bonds climbed for a sixth day before German Chancellor Angela Merkel and French President Nicolas Sarkozy meet to discuss the region’s deficit rules ahead of a Dec. 9 summit.

To bolster the economy, the European Central Bank will probably lower its benchmark interest rate by another 25 basis points to 1 percent when policy makers meet on Dec. 8, according to a Bloomberg survey of 57 economists. The ECB last month unexpectedly trimmed borrowing costs and forecast a “mild recession.”

“Europe is working on numerous fronts in an attempt to regain the trust of markets,” Simon Smith, chief economist at foreign-exchange broker FXPro Group Ltd. in London, said in an e-mailed note. “Overall, there is a great weight of expectation on the outcome of this week’s meetings.”

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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