July 21 (Bloomberg) -- European services and manufacturing growth weakened more than economists forecast to the slowest pace in almost two years, adding to signs the euro-region recovery is losing momentum as the debt crisis persists.
A composite index based on a survey of euro-area purchasing managers in both industries fell to 50.8 in July from 53.3 in June, London-based Markit Economics said today. That’s the lowest since August 2009. Economists forecast a drop to 52.6, the median of 17 estimates in a Bloomberg News survey showed. A reading above 50 indicates growth.
European leaders are holding a special meeting in Brussels today in an effort to contain the region’s fiscal crisis after eight banks failed stress tests. While economic confidence dropped in June, booming export demand has helped bolster orders at some of the region’s largest companies including German carmaker Bayerische Motoren Werke AG.
“We expect the euro-region recovery to lose momentum over the coming months,” said David Kohl, deputy chief economist at Julius Baer Group in Frankfurt. “The German boom is mainly export driven and the global economy is also cooling. The second half will be significantly weaker overall.”
The euro was little changed after the data, trading at $1.4252 as of 9:26 a.m. today in London, and up 0.3 percent on the day.
The euro-area services indicator fell to 51.4 this month from 53.7 in June, Markit said in the initial estimate. The manufacturing gauge decreased to 50.4 from 52.
While European leaders struggled to fight the fiscal crisis from spreading across the 17-member region, the European Central Bank on July 7 raised borrowing costs a second time this year, with President Jean-Claude Trichet saying it’s up to governments to restore confidence. The euro region’s expansion probably weakened in the second quarter, he said.
Adding to signs of slowdown, economic confidence dropped to the lowest in eight months in June and German investors were the most pessimistic in 2 1/2 years in July. German executive confidence probably also declined this month, according to a Bloomberg survey. The Munich-based Ifo institute will release the indicator tomorrow.
BMW, based in Munich, expects “certain economies around the world will go into a more difficult situation,” Marketing Director Ian Robertson said in an interview on July 14. While Europe is “a tale of north and south,” markets including China and Brazil are showing sales growth of 60 percent or more, he said. In Greece, which received a bailout last year, the market “has virtually disappeared,” according to Robertson.
European officials are exploring ideas from bond buybacks to a temporary default as they overhaul strategies to alleviate pressure on Greece and prevent panic from spreading. Italian Finance Minister Giulio Tremonti said last week that “like with the Titanic, even the first-class passengers can’t be saved.”
The European Banking Authority said on July 15 that eight out of the 90 banks had failed the stress tests. Regulators didn’t include the impact of a Greek default in the assessment even though credit-default swaps indicate investors see an almost 90 percent chance of the country restructuring its debt.
“With this week’s summit, the results of the stress tests will only be secondary.,” Carsten Brzeski, an economist at ING Group in Brussels, told Owen Thomas on Bloomberg Television’s “First Look” on July 18. “Just tough talk is not sufficient any more. We really need to see a breakthrough, we need to see how the euro zone is willing to deal” with the Greek issues.
With governments cutting spending and raising taxes to plug their budget gaps, companies have relied on faster-growing markets to boost sales. Volkswagen AG, Europe’s largest carmaker, said earlier this month that first-half deliveries exceeded 4 million units for the first time ever.
“We’re also confident we can perform better than the global automobile market during the second half,” VW sales chief Christian Klingler said in a statement on July 15. Still, “plenty of hard work lies ahead.”
Euro-region industrial orders probably rose 0.8 percent in May from the previous month, according to a Bloomberg survey. The European Union’s statistics office in Luxembourg will release the figures tomorrow at 11 a.m.
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