Euro zone seen back in recession, Asia resilient

LONDON/SINGAPORE Wed Sep 5, 2012 3:57pm IST

GLOBAL-ECONOMY/PMI - Charts PMI data for major industrial nations. RNGS. (SIN06)

Credit: Reuters

LONDON/SINGAPORE (Reuters) - The euro zone probably slipped back into recession in the current quarter, according to business surveys on Wednesday that also showed Asia's services sector growth remained muted in August as the global economy struggled to get its footing.

The Purchasing Managers' Index (PMI) for the euro zone, published by Markit, showed the economic rot that began in smaller periphery members of the 17-nation bloc is now taking hold even in Germany, its largest and strongest economy.

"There is very little in the overall euro zone PMIs to suggest an imminent recovery. The figures are consistent with the economy returning to a technical recession," said Philip Shaw at Investec.

"The overall levels of growth implied by the PMIs in Asia are stronger but it is pretty clear that the Asian economies are catching a cold from the economic woes being suffered elsewhere."

A Reuters poll published last month predicted the euro zone would contract 0.2 percent in the three months to September but Markit said the PMIs suggested the downturn could be far worse, shrinking by 0.5-0.6 percent.

The euro zone economy shrank 0.2 percent in the three months to June, according to official data. A second quarter of contraction would meet the technical definition of recession.

August's euro zone composite PMI, which measures manufacturing and services together, fell to 46.3, revised down from a flash reading of 46.6 and below July's 46.5.

It was pulled down by a fall in Germany's composite PMI to 47.0, its lowest reading since June 2009 when the euro zone was in the middle of the worst recession since World War Two.

While the situation in Europe remains dire, survey data from Britain released on Tuesday provided some respite. Its services sector posted unexpectedly strong PMI numbers, a sign the country may be crawling out of recession.

Ireland's services sector grew for the first time in four months in August, a PMI survey showed on Wednesday, as a rise in new business at home and abroad offered some shelter from a slump in the rest of the euro zone.

But with downbeat PMI surveys from Italy, France and Germany, investors are anxious to see if the European Central Bank will adopt more drastic measures at its policy meeting on Thursday to help alleviate the crisis in the region and reduce crippling borrowing costs in Spain and Italy.

The sovereign debt crisis which began in the euro zone's smaller economies is now hammering business and consumer confidence worldwide, putting pressure on policymakers to take radical steps to help.

With the crisis in the euro zone showing little sign of easing, hopes of a quick turnaround in China's fortunes are fast fading, with many forecasting its economy to remain weak well into the third quarter and possibly beyond.

FRAGILE CHINA

China's services PMI index fell to 52.0 in August, a one-year low but still showing growth. In India, services business grew at its fastest pace in six months with the index at 55.0.

"Broadly speaking we still see Asia as quite resilient. Asia overall still benefits from quite strong fundamentals. It also has, in many cases, policy room to counter external headwinds," said Leif Eskesen, chief India and ASEAN economist at HSBC.

"In China's case this is something that will help prop up growth. More importantly, domestic sources of growth are generally quite strong within the region."

The People's Bank of China cut interest rates in June and July and has been injecting cash into money markets to ease credit conditions, as calls for the central bank to do more to support the economy grow louder.

Any dramatic stimulus measures by Beijing are unlikely, as policymakers are wary of reigniting inflation in the property market and broader economy.

Manufacturing PMI surveys this week painted a gloomier picture, revealing a spreading contraction in Asia's factory sector as new export orders fell in the region.

In the euro zone, manufacturing business contracted faster than previously thought, with core countries failing to provide any support as the downturn swept across the 17-nation bloc.

(Additional reporting by Lucy Hornby Beijing and Sumanta Dey in Bangalore; Editing by Catherine Evans)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared
People walk in the Wipro campus in Bangalore June 23, 2009. REUTERS/Punit Paranjpe/Files

Wipro Q4 net profit beats estimates, rises 29 percent

Wipro posted a 29 percent rise in its fourth-quarter net profit, beating expectations, helped by increased IT spending by its customers. For the quarter ended March 31, the company said it earned 22.27 billion rupees compared with 17.29 billion rupees a year earlier.  Full Article | Full Coverage 

REUTERS SHOWCASE

Literary Giant Dies

Literary Giant Dies

Nobel winner Garcia Marquez, master of magical realism, dies at 87.  Read 

Election 2014

Election 2014

India holds biggest day of voting with BJP gaining strength  Full Article | Full Coverage 

Insider Trading

Insider Trading

Ex-Goldman director Gupta starts prison term on June 17.  Full Article 

Market Eye

Market Eye

Sensex jumps 351 points, snaps 3-day losing streak  Full Article 

Expansion Plans

Expansion Plans

Reliance Industries, HPCL Mittal plan refinery expansions.  Full Article 

S&P on India

S&P on India

S&P: India's ratings to depend on next govt econ, fiscal policies.  Full Article 

Ambitious Aim

Ambitious Aim

In green car race, Toyota adds muscle with fuel-cell launch.  Full Article 

Deal Talk

Deal Talk

Piramal to buy 20 percent stake in Shriram Capital for $334 million.  Full Article 

Bond Market

Bond Market

A star abroad, RBI boss riles bond traders at home  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage