Eurozone growth slump drags on

Expansion in Chinese economy falls to weakest level since August 2011


The eurozone’s business downturn dragged on in April, suggesting the region may be falling deeper into recession this quarter, business surveys showed today.

Business expansion also flagged in China where growth was at its weakest since August 2011

Today’s European purchasing managers indexes (PMIs) suggested the euro zone is on course for a worse downturn in the current quarter, with Germany now suffering a contraction in business activity that has long dogged France, Italy and Spain.

Markit’s Eurozone Composite PMI, which gauges activity across thousands of companies and is seen as a good gauge of economic conditions, edged up in April to 46.9 from 46.5 in March, marking an improvement on an initial reading of 46.5.

But the index has now been below the watershed 50 level that divides growth from contraction for over a year, and April’s reading was far lower than those seen in January and February.

Markit, which compiles the PMI, said the survey was broadly consistent with gross domestic product falling at a quarterly rate of 0.4-0.5 per cent.

The first reading of the euro zone’s economic performance between January and March comes out next Wednesday, and economists polled by Reuters estimate output fell 0.2 per cent.

Official data also showed eurozone retail sales fell 0.1 per cent in March, while Sentix’s economic sentiment index showed a slight improvement in the euro zone - but like the PMIs, a worsening in Germany.

“(The PMI) keeps open the possibility that the European Central Bank could eventually take interest rates lower still,” said Howard Archer, chief UK and European economist at IHS Global Insight.

ECB executive board member Benoit Coeure said on Saturday that was a possibility, even after the bank cut its main refinancing rate to a new record low 0.5 per cent on Thursday, if economic indicators deteriorate further.

In China, service sector growth in slowed in April to its lowest point since August 2011, in fresh evidence of risks to a revival in the world’s second biggest economy.

The HSBC services Purchasing Managers’ Index (PMI) fell to 51.1 in April from 54.3 in March, with new order expansion the slowest in 20 months and staffing levels in the service sector decreasing for the first time since January 2009.

The closely-watched official government Chinese PMIs also showed slowing growth last week in both services and manufacturing companies.

“The weak HSBC service PMI figure provides further evidence of a slowdown not only in the factory sector but also in the service sector,” said Zhang Zhiwei, chief China economist at Nomura Securities in Hong Kong.

“This confirms our worries about insufficient growth momentum in the economy, which we expect to slow to 7.5 percent in the second quarter.”

The HSBC survey showed a sub-index measuring new business orders dropped sharply to a 20-month low of 51.5 in April, with only 15 percent of survey respondents reporting increased new orders that month, HSBC said.

“This (has) started to bite employment growth. All these are likely to add some risk to China’s growth in the second quarter, as there’s still a bumpy road towards sustaining growth recovery,” said HSBC’s China chief economist Qu Hongbin.