Eurozone falls into recession

The eurozone has fallen into recession, with industry particularly badly hit by the fall-out from global economic turmoil, results of a closely watched survey indicated on Tuesday.

Private sector output in the 15-country region contracted in September for the fourth consecutive month, according to eurozone purchasing managers’ indices. The pace of decline was the fastest since the aftermath of the September 2001 terrorist attacks in the US, with manufacturing faring worse than services.

The latest data indicated that, even if the crisis on Wall Street has yet to have a direct impact on eurozone economies, global economic storms have pushed the region into a technical recession – two quarters of contracting gross domestic product.

The eurozone composite purchasing managers’ index – covering services as well as manufacturing – fell from 48.2 in August to 47 this month. A figure below 50 is meant to indicate a contraction in activity.

Chris Williamson, economist at Markit, the information group that produces the survey, said on past experience the latest readings were consistent with stagnation. But the results excluded construction and retailing sectors, which had fared even worse over the period. “So you are looking at recession,” he concluded. Eurozone GDP had fallen by 0.2 per cent in the three months to June.

But there was some better news on the inflation front, with the survey showing that prices of companies’ inputs rising at the weakest rate since October 2007, largely as a result of lower oil and other commodity prices.

A further easing in inflationary pressures, together with signs that the growth slowdown will prove protracted, would encourage speculation that the European Central Bank will move towards cutting interest rates. The spreading global gloom has not escaped European policymakers, which watched aghast last week as US authorities allowed the collapse of Lehman Brothers.

Still, with eurozone inflation at 3.8 per cent, and crucial wage negotiations looming in Germany’s engineering sector, economists remain sceptical that the ECB will make any move until the first few months of next year at the earliest.

Industry was “reeling” from weak demand, Mr Williamson added, with the growth slowdown in emerging market economies and China “really hurting European manufacturers”.

The latest data, which offered scant sign of an improvement in coming months, were a blow for the ECB. Prior to the crisis on Wall Street the central bank had argued that a weak third quarter would be followed by a gradual recovery in growth. Yesterday’s surveys showed new orders – an indication of likely future trends in production – fell this month at the fastest rate in five years.

By Ralph Atkins in Frankfurt
Published: September 23 2008 10:04 | Last updated: September 23 2008 17:01

Source: Financial Times

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