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Euro-Area Manufacturing Contracts, Adding to Recession Signs

Euro-area manufacturing output contracted in October, adding to signs a recession in the currency bloc may extend into next year as leaders struggle to tackle the sovereign-debt crisis.

A gauge of manufacturing in the 17-nation euro area fell to 45.4 from 46.1 in September, snapping two months of advances, London-based Markit Economics said today. That compares with an initial October estimate of 45.3 published on Oct. 24. A reading below 50 indicates contraction.

Europe’s slump is deepening as governments toughen spending cuts and economies around the globe show signs of cooling. The European Central Bank, which has pledged to purchase government bonds along with the euro-area rescue fund to fight the fiscal crisis, is forecast to leave its benchmark rate unchanged at its Nov. 8 meeting, according a Bloomberg survey of economists.

“It already looks probable that the euro zone is headed for further economic contraction in the fourth quarter,” said Howard Archer, chief European economist at IHS Global Insight. “We don’t expect the ECB to loosen monetary policy at the Nov. 8 meeting, but we have pencilled an interest-rate cut to 0.5 percent in December.”

The euro was lower against the dollar after the manufacturing data. The European currency, which has fallen more than 6 percent versus the dollar in the past year, traded at $1.2877 at 10:30 a.m. in Brussels, down 0.5 percent on the day.

More Difficult

Euro-area governments may find it more difficult to plug their budget gaps with at least five nations already in recessions and the fiscal turmoil spreading from the periphery to core countries. Manufacturing output contracted in Germany, France and Italy in October, today’s data showed.

Thomas Mayer, an economic adviser to Deutsche Bank AG, said he anticipates a euro-area recession will continue into 2013.

“We are probably going with negative momentum into the first quarter of next year,” Mayer said yesterday in an interview with Guy Johnson on Bloomberg Television’s “The Pulse.” “The recession now looks likely to continue, and this puts the question of rate cuts back on the table.”

With consumers holding back spending and global demand faltering, European companies may struggle to maintain their sales growth. MAN SE Chief Executive Officer Georg Pachta-Reyhofen said on Oct. 30 that the debt crisis has led to uncertainty that “translates into shrinking order books” at Europe’s third-largest truckmaker.

While manufacturing indicators from the U.K., Sweden, Norway, Greece, Switzerland and the Czech Republic yesterday also showed contractions, China’s manufacturing expanded for the first time in three months in October and a gauge in India rose. The U.S. factory index also gained last month.

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