Europe Manufacturing Shrinks as Recovery Concerns Mount

Euro-area manufacturing shrank for a seventh month and unemployment rose to the highest in more than 14 years, stoking concern that the regional economy may struggle even as global growth improves.

A manufacturing gauge based on a survey of purchasing managers in the 17-nation region increased to 49 in February from 48.8 in January, remaining below the 50 line that divides expansion from contraction, London-based Markit Economics said today. Separate reports showed the jobless rate rose to 10.7 percent in January, the highest since October 1997, and inflation accelerated last month.

The manufacturing survey contrasts with reports in China, India and the U.K. showing continued expansion in factory output. While Europe is pressing on with measures to stem its sovereign debt crisis, the region is likely to lag behind growth elsewhere in the world as Asia and the U.S. boost global prospects.

“We won’t get an economic improvement anytime soon in Europe,” said Alexander Krueger, chief economist at Bankhaus Lampe KG in Dusseldorf. “The first quarter will definitely be negative and there are concerns that we’ll see a deeper or longer recession. Downside risks are prevailing.”

The euro-area manufacturing index was in line with a preliminary estimate on Feb. 22. Markit economist Chris Williamson said the survey showed new orders continued to decline last month and there is “still lots to worry about.”

Inflation Accelerates

The unemployment report from the European Union’s statistics office showed that the number of jobless in the region rose 185,000 in January to 16.93 million people. Inflation quickened to 2.7 percent in February from 2.6 percent in January, the office said.

Oil prices have increased in recent months on concern that sanctions against Iran will disrupt supplies. European Central Bank council member Ewald Nowotny said on Feb. 28 that “disturbing developments in the Middle East” could fuel inflation. “That could make life a bit more difficult,” he said.

The International Monetary Fund has forecast that the euro-area economy will contract 0.5 percent this year, according to a report in January. The U.S. may expand 1.8 percent and the global economy by 3.3 percent.

Europe’s Struggles

Europe’s economy is struggling to gain strength after shrinking in the fourth quarter as governments from Italy to Greece step up budget cuts, undermining hiring and consumer demand. While the European Central Bank has provided banks with more than 1 trillion euros ($1.3 trillion) of cash since December, it may take time for fresh liquidity to seep through and spur investment.

The output figures “support our view that we have a slow-burn recession in Europe,” said Thomas Costerg, an economist at Standard Chartered Plc in London. “The ECB is clearly providing a boost to confidence, though there is a lag in that feeding through and we still have a lot of drag on activity.”

In the U.K., a manufacturing gauge slipped to 51.2 in February from 52.0 in January, Markit said in a separate report. While the index still indicates expansion, the report said “weak demand from the euro zone offset new business wins in the U.S. and Asia.”

Asian Surge

Data from China today showed that a purchasing managers’ index rose for a third month to 51 in February from 50.5 in January. In India, a PMI released by HSBC Holdings Plc and Markit was close to an eight-month high.

Today’s Chinese data, along with a surprise gain in Japanese companies’ capital spending and South Korea’s biggest increase in exports in six months, add to signs that global growth prospects are improving.

The MSCI Asia Pacific Index slid 0.9 percent today on speculation that the better-than-expected data from China mean the government will refrain from more monetary easing. The gauge entered a bull market yesterday, gaining more than 20 percent from an Oct. 5 low. Europe’s Stoxx 600 Index was up 0.4 percent as of 10:53 a.m. in London.

U.S. manufacturing may have strengthened for a fourth month in February. The Institute for Supply Management’s factory index rose to 54.5, the highest since June, from 54.1 in January, according to the median estimate of 78 economists surveyed by Bloomberg News for a report due today.

Initial jobless claims in the U.S. probably rose to 355,000 in the week ended Feb. 25 from a four-year low of 351,000 a week earlier, according to the median projection of 48 economists. Consumer spending may have increased 0.4 percent in January, according to the median of 80 economists, after being unchanged in December.

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