Euro zone downturn continues in July


The euro zone's private sector shrank for a sixth month in July as manufacturing output nosedived, adding to the likelihood that the region will slump back into recession, business surveys showed today.

In a further blow to policymakers battling a raging debt crisis, the downturn that began in the euro zone's smaller economies has become entrenched in the core countries of Germany and France.

Markit's Eurozone Composite Purchasing Managers' Index (PMI), a combination of the services and manufacturing sectors and seen as a guide to growth, held steady at 46.4 this month, missing expectations for an uptick to 46.5.

The index has been below the 50 mark that separates growth from contraction for six months, and data collator Markit said it suggests a quarterly GDP fall of 0.6 per cent.

"It's suggesting that things are getting worse," said Chris Williamson, chief economist at Markit.

"The overall picture of stabilisation is masking an increasing problem in Germany and the core is being increasingly affected by the debt crisis."

Coupled with an expected 0.3 per cent contraction in the second quarter, that would put the euro zone in its second recession since 2009.

To try and spur growth, the European Central Bank cut its main refinancing rate to a record low 0.75 per cent and the deposit rate to zero earlier this month.

The central bank has been battling to stem the repercussions from a debt crisis that began in Greece over two years ago and is showing little sign of abating, putting the brakes on growth across the globe.

Earlier data from Germany, Europe's largest economy, showed its manufacturing sector contracted at its fastest pace in over three years and that its service sector, which was expected to stagnate, also shrank.

Next door in France factory activity fell at its fastest pace since May 2009 although its service sector confounded expectations by eking out a small amount of growth. Markit said that upturn was likely temporary, citing a return to business as usual after a presidential election.