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Euro-Area Slump Persists as Chinese Factories Recover

Euro-Area Services, Manufacturing Slump for 10th Straight Month
Euro-area services and manufacturing output shrank for a 10th month in November. Photographer: Alessia Pierdomenico/Bloomberg

Euro-area services and manufacturing output shrank for a 10th month in November as the debt crisis hurt confidence, underscoring divergences in the global economy as China’s factories showed the first growth in more than a year.

A composite index based on a survey of purchasing managers in both industries in the euro zone was little changed at 45.8 compared with 45.7 in October, London-based Markit Economics said today. A Chinese manufacturing index climbed to 50.4 from 49.5 last month, HSBC Holdings Plc and Markit said in a separate report. A reading above 50 indicates expansion.

The economy of the 17 euro nations has slipped back into a recession and the European Commission cut its 2013 growth forecast this month. Sentiment is being undermined by a deadlock over Greek aid and tensions over European Union budget talks that start today in Brussels. Gains in Chinese manufacturing, meanwhile, bolster prospects for a sustained pickup in the world’s second-largest economy.

“Unfortunately, this time around Europe won’t be able to bank on the Chinese recovery to lift its economy out of the quagmire,” said Julian Callow, chief international economist at Barclays Capital in London. “The composition of growth in China is moving to consumption, away from investment which has traditionally been where Europe’s exporters would have benefited.”

Unemployment Rate

The euro-area economy shrank 0.1 percent in the third quarter after a 0.2 percent contraction in the previous three months, data showed last week. The unemployment rate is at a record 11.6 percent and the Brussels-based commission sees gross domestic product rising just 0.1 percent next year.

Today’s report “suggests that the downturn is set to gather pace significantly in the fourth quarter,” said Chris Williamson, chief economist at Markit. “The final three months of the year could see GDP fall by as much as 0.5 percent.”

The economic environment in Europe contrasts with that of China, where there are signs that growth is rebounding after a seven-quarter slowdown. The preliminary reading of a Chinese manufacturing index was 50.4 in November, HSBC and Markit said. That compares with a final October level of 49.5.

A rebound in manufacturing, after economic growth slowed last quarter to a three-year low, may smooth a once-a-decade leadership transition for the ruling Communist Party, set to install Li Keqiang as premier in March, and reduce the likelihood of additional monetary stimulus.

Consumer Expectations

There are also green shoots in the U.S. The share of households projecting the economy will get better rose to 37 percent, the highest since March 2002, according to a survey accompanying the Bloomberg Consumer Comfort Index published late yesterday. That propelled the survey’s monthly consumer expectations gauge to 4 from minus 7.

In the euro area, Germany’s manufacturing gauge rose to 46.8 in November from 46 in October, while the service indicator slipped to 48 from 48.4. The factory index in France increased to 44.7 from 43.7 and the services gauge jumped to 46.1 from 44.6.

“Austerity continues to hurt demand in many peripheral and some core economies,” said Christian Schulz, senior economist at Berenberg Bank in London. “However, the global business cycle may start helping a bit,” he added, noting that the euro-area manufacturing gauge is at the highest since March. “The sector is still contracting, but some anecdotal evidence, for instance in the German survey, seems to point to better business with China.”

The euro advanced against the dollar, trading at $1.2867 at 11:30 a.m. in Frankfurt, up 0.3 percent on the day.

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