Euro-Region Services, Manufacturing Contract for Second Month

Euro-area services and manufacturing output contracted for a second month in March, adding to signs that the economy continued to shrink in the first quarter.

A euro-area composite index based on a survey of purchasing managers in both industries dropped to 49.1 from 49.3 in February, London-based Markit Economics said today. That’s above an initial estimate of 48.7 on March 22. A reading below 50 indicates contraction.

Rising energy costs are sapping consumers’ purchasing power just as global demand falters and governments across the region cut spending to plug their budget gaps. With economies from Ireland to Spain in recession and European confidence in the economic outlook weakening in March, today’s indicator contributes to signs that companies may continue to curb output and hiring.

The euro-region economy probably “suffered further contraction in the first quarter of 2012,” said Howard Archer, chief European economist at IHS Global Insight in London. “This would put the euro zone back into recession.

A gauge of euro-region manufacturing fell to 47.7 in March from 49 in February, Markit said earlier this week. A measure of services rose to 49.2 from 48.8.

‘No Less Challenging’

The euro-region economy may shrink 0.3 percent this year before returning to growth in 2013, the European Commission said on Feb. 23. The economies of Belgium, Greece, Spain, Italy, Cyprus, the Netherlands and Portugal are all seen contracting in 2012, according to the Brussels-based commission.

Adding to signs of a deepening slump, euro-region unemployment jumped to 10.8 percent in February, the highest in more than 14 years, and industrial orders dropped the most in four months in January. Retail sales probably fell in February, according to a Bloomberg News survey. The European Union’s statistics office will report that release at 11 a.m. today.

Michael Diekmann, chief executive officer at Allianz SE, Europe’s largest insurer, wrote in a letter to shareholders published on March 23 that he expects 2012 to be “no less challenging” than last year. Schaeffler AG, the world’s second-biggest maker of roller bearings, last month forecast slower sales growth in 2012 as European markets weaken.

“The euro-area economy is not likely to be recording stabilization in gross domestic product until at least the middle of the year,” Julian Callow, head of international economics at Barclays Capital, said in an e-mailed note.

The European Central Bank, which injected more than 1 trillion euros ($1.3 trillion) into the system to help fight the turmoil, will probably keep its benchmark interest rate at 1 percent, matching a record low, when council members meet today, according to a Bloomberg survey. President Mario Draghi said last month he sees “signs of stabilization” in the euro area.