Euro-Area Manufacturing, Services Declined in March

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Photographer: Angel Navarrete/Bloomberg

Waiters wait for customers at an empty cafe terrace in Madrid.

Euro-area services and manufacturing output contracted more than economists estimated in March, adding to signs the currency bloc’s economy is struggling to emerge from a recession.

A composite index based on a survey of purchasing managers in both industries fell to 46.5 from 47.9 in February, London- based Markit Economics said today. Economists had forecast a reading of 48.2, according to the median of 23 estimates in a Bloomberg survey. A reading below 50 indicates contraction.

The data “indicate that the euro-zone economy has remained stuck in recession in the first quarter,” said Martin Van Vliet, senior euro-area economist at ING Groep NV in Amsterdam. “With fiscal austerity, tight credit and high unemployment set to keep most peripheral economies in recession, the path back to growth will likely be slow and bumpy. Moreover, if the situation surrounding Cyprus spirals out of control the onset of recovery might well be delayed.”

The euro-area economy has contracted for five straight quarters and is forecast to shrink 0.1 percent in the first three months of 2013 before returning to growth, the median of 24 economists’ estimates in a separate Bloomberg survey shows. The European Central Bank forecasts the economy will contract 0.5 percent this year.

Gradual Recovery

ECB President Mario Draghi said earlier this month that the euro region will gradually recover later in 2013 from its second recession in four years. Still, concerns of a possible bank collapse in Cyprus and political turmoil in Italy are roiling financial markets, and threaten to derail confidence.

European stocks fell the most in three weeks and the euro weakened as German manufacturing, one of the components of the euro-region survey, unexpectedly shrank. The Stoxx Europe 600 Index lost 0.5 percent at 11:23 a.m. in London. The euro declined 0.2 percent to $1.2913.

The euro-area services index dropped to 46.5 in March from 47.9 in February, today’s data showed. The manufacturing gauge fell to 46.6 from 47.9.

German manufacturing output unexpectedly contracted in March. An index based on a survey of purchasing managers in the manufacturing industry of Europe’s largest economy declined to 48.9 this month from 50.3 in February, while a services gauge fell to 51.6 from 54.7, Markit said in a separate report.

Chemical Forecast

Lanxess AG (LXS), the chemical maker that joined Germany’s benchmark DAX index in September, forecast a larger-than- estimated drop in profit for the current quarter on weak demand in the tire and automotive industries.

Lanxess is budgeting for profit to decline in 2013. Earlier this month, the company announced it will idle synthetic rubber factories in Belgium and the U.S. because of weak orders from the auto industry. Europe’s car-market contraction accelerated in February, with registrations dropping 10 percent from a year earlier, the Brussels-based European Automobile Manufacturers’ Association, or ACEA, said on March 19.

“The big issue at the moment is clearly Cyprus,” said Ben May, European economist at Capital Economics Ltd. in London. “The European economy is still very fragile and it may not take much to stall any recovery in the coming months.”

Irish Stagnation

In Ireland, data today showed the economy failed to grow in the fourth quarter, as government and investment spending dropped. Gross domestic product was unchanged from the third quarter, when it contracted a revised 0.4 percent, the Central Statistics Office said in Dublin today. The median estimate of nine economists was for the economy to expand by 0.2 percent.

In contrast to the euro area, U.K. data today suggested that the economy may be showing signs of recovery. Retail sales rose more than economists forecast in February in a rebound from a drop the previous month when heavy snowfall held back consumer activity. Sales including fuel surged 2.1 percent from January, when they dropped a revised 0.7 percent.

A separate report showed a measure of U.K. manufacturers’ outlook for production rose in March to the highest in a year. A gauge of output expected for the second quarter rose to 22 from 5 in February, the Confederation of British Industry said. The U.K. also posted its smallest February budget deficit since 2008 after the Treasury received a second installment of cash from the Bank of England and proceeds from the sale of fourth- generation mobile spectrum, the statistics office said.

In China, manufacturing expanded at a faster-than-forecast pace this month as production and orders picked up, helping sustain a recovery in the world’s second-biggest economy. The preliminary reading of a Purchasing Managers’ Index was 51.7 in March, according to a statement from HSBC Holdings Plc and Markit Economics today.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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