Euro-Area Manufacturing, Services Contraction Worsens: Economy

Euro-area services and manufacturing contracted at a faster pace than economists forecast in February as the economy struggled to recover from the deepest recession in almost four years.

A composite index based on a survey of purchasing managers in both industries in the 17-nation currency bloc decreased to 47.3 from 48.6 in January, London-based Markit Economics said today. Economists had forecast a reading of 49, according to the median of 22 estimates in a Bloomberg survey. Germany’s services measure declined more than forecast to 54.1, while its factory gauge rose above 50, indicating expansion in that industry.

The data reinforce indications that the euro-area economy continued to contract in early 2013 after the recession worsened in the fourth quarter. The European Central Bank forecasts gross domestic product will decline 0.3 percent this year.

“When you’re in the midst of the recession, and some would argue, a depression in some places like Greece, it’s hard to be optimistic,” Robert Savage, chief strategist at New York-based currency fund FX Concepts, said today in a Bloomberg Television interview. The PMI data “are highlighting the problem.”

The euro-area services index fell to 47.3 in February from 48.6 in January, its steepest drop in 10 months, today’s data showed. The manufacturing gauge slipped to 47.8 from 47.9. Markit will publish the final reading for the factory index on March 1 and the services and composite measures on March 3.

German Manufacturing

In Germany, Europe’s biggest economy, the services measure fell to 54.1 in February from 55.7 last month, the sharpest decline since August. The German manufacturing gauge rose to 50.1, moving into expansion for the first time in a year. France’s services gauge fell to 42.7 this month from 43.6 in January, while its manufacturing index increased to 43.6 from 42.9, today’s data showed.

“The information in business surveys currently reveals that the growth impetus in Europe is nearly exclusively coming from foreign demand, a growth engine that might still be hampered by an appreciating exchange rate,” said Peter Vanden Houte, an economist at ING Bank NV in Brussels. “And even if we assume that the euro’s appreciation is largely behind us, net exports alone are insufficient to lift growth above zero percent in 2013.”

Gradual Recovery

The economy will probably shrink 0.1 percent this quarter before returning to growth in the three months through June, according to a Bloomberg survey of economists on Feb. 15. Euro-area exports declined the most in five months in December as the currency’s gains made European goods less competitive abroad.

The euro has risen more than 8 percent against the U.S. dollar in the past seven months, moving as high as $1.3711 on Feb. 1, the strongest since Nov. 14, 2011. The euro was lower against the dollar today and traded at $1.3187 at 11:59 a.m. in Brussels, down 0.7 percent on the day.

European stocks tumbled the most in two weeks on the PMI report and after China called for property curbs and the U.S. Federal Reserve’s minutes showed policy makers backed more flexibility in stimulus. The Stoxx Europe 600 Index slid 1.4 percent to 285.11.

In the U.K., which is not a member of the euro area, a manufacturing index climbed more than economists forecast in February as export demand increased. A gauge of manufacturing orders rose to minus 14 from minus 20 in January, the Confederation of British Industry said today. The median of 11 forecasts in a Bloomberg survey was for a reading of minus 15.

Largest Economy

Markit’s purchasing-managers measure for manufacturing in the U.S., the world’s largest economy, probably will show expansion slowed this month, according to a survey of economists ahead of preliminary report due later today. The U.S. will release consumer price data for January, while economists predict a separate report will show jobless claims rose in the week through Feb. 16.

Elsewhere in Europe today, Britain saw its budget surplus widen in January as the Treasury received the first payment of gilt-coupon income from the Bank of England’s quantitative easing program. The surplus excluding government support for banks was 11.4 billion pounds ($17.4 billion) compared with 6.4 billion pounds a year earlier, the Office for National Statistics said.

In Asia, Hong Kong’s jobless rate rose to 3.4 percent last month, while Singapore will probably force companies to further reduce their reliance on foreign labor in the 2013 budget after a public backlash against the influx of workers.

Gradual Recovery

In Europe, ECB President Mario Draghi said this week that the euro area should begin a gradual recovery later this year as monetary stimulus works its way through the economy.

While investor confidence has risen and European stocks have advanced, there remain signs some companies are struggling. European Union car sales fell to the lowest level for a January in at least 23 years, according to data this week. Registrations dropped 8.7 percent to 885,159 vehicles last month, the Brussels-based European Automobile Manufacturers’ Association, said. That’s the lowest start to the year since the group began tracking sales in 1990.