Euro zone service and manufacturing sectors contract as downturn spreads

Thu, Nov 24, 2011, 00:00

PRIVATE SECTOR:THE EURO zone’s private sector contracted for a third month in November as a downturn that started in “peripheral” countries has spread to core members of the currency region, surveys showed yesterday.

The surveys point to the euro zone economy shrinking 0.5-0.6 per cent in the fourth quarter, after 0.2 per cent growth in the third quarter, data compiler Markit said, and suggests things are unlikely to improve soon.

While the region’s dominant service sector contracted less than expected this month, its manufacturing sector, which fuelled a large part of the last recovery, shrank more than thought as output fell to its lowest level since mid-2009.

The Flash Markit Eurozone Services Purchasing Managers’ Index (PMI), which tracks business activity at thousands of firms across the 17-nation euro zone, rose to 47.8 this month from October’s 46.4, beating expectations for 46.5. This is the third month the index has been below the 50 mark that divides growth from contraction, taking its toll on firms’ outlook.

The business expectations index fell to 52.5 from October’s 52.7 and its weakest showing since March 2009, which was not long after the region had passed the darkest point in the last recession.

“That indicator continued to come down, which doesn’t augur well for the sector and suggests that service sector growth will continue to weaken,” said Chris Williamson at Markit.

“Alongside a manufacturing weakness, it is setting the scene for a weak start to the new year. One of the worrying signs in manufacturing is that the rate of decline is gathering momentum.”

The euro zone’s manufacturing PMI fell to 46.4 in November from 47.1 last month, its lowest reading since July 2009 and shy of expectations for a smaller dip to 46.5.

The output index, which feeds into the broader composite survey that combines manufacturing and services, fell to 45.8 from 46.6 in October. Worryingly, part of that remaining activity was driven by firms winding down backlogs of work at the fastest pace since June 2009, with the index falling to 43.6 from 44.0.

Germany saw a deeper contraction in its manufacturing sector than expected this month but its service sector confounded economists by growing rather than stagnating, earlier data showed.

In France, the euro zone’s second-largest economy, with its service sector PMI remaining sub-50 but bouncing to 49.3 from 44.6 whereas its manufacturing index fell to 47.6 from 48.5.