Bloomberg News

European Industries Shrink as Global Slowdown Deepens: Economy

November 24, 2011

(For more on Europe’s sovereign-debt crisis, see EXT4.)

Nov. 23 (Bloomberg) -- European services and manufacturing shrank further, industrial orders had the biggest drop in almost three years and China’s factories showed signs of contraction as a global slowdown deepened.

A euro-area composite index based on a survey of purchasing managers in both industries rose to 47.2 this month from 46.5 in October, indicating persisting contraction, London-based Markit Economics said today. The region’s industrial orders slumped 6.4 percent in September from the previous month, while China’s manufacturing may shrink in November by the most in more than 2 1/2 years, two separate reports showed.

Europe’s worsening debt crisis and slowing growth across emerging markets are hurting global demand and adding pressure on policy makers to step up efforts to protect their economies. The U.S. economy, the world’s largest, grew less than previously estimated in the third quarter, and Nobel Prize winner Joseph Stiglitz said today there’s “a significant likelihood” of a recession in Europe.

“The manufacturing cycle is clearly taking a turn for the worse,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London. “We’re still far away from a situation where a global recession would become a likely scenario but looking at next year, downside risks outweigh upside risks.”

The euro depreciated against the dollar, trading at $1.3391 at 12.16 p.m. in Brussels, down 0.8 percent on the day. French and Belgian bonds slumped as the cost of insuring European government debt against default rose to a record.

Debt Crisis

The two-year-old debt crisis is forcing governments to implement tougher austerity measures across the 17-member region, undermining consumer demand and corporate spending. Deutsche Lufthansa AG said yesterday it will withdraw at least one-fifth of its cargo capacity in the first half of next year to counter an anticipated slowdown.

In Germany, Europe’s largest economy which has powered the region’s expansion, business confidence probably dropped to the lowest in almost two years in November, according to a Bloomberg News survey. The Ifo institute in Munich will release the report tomorrow.

‘Too Late’

Stiglitz told Francine Lacqua on Bloomberg Television’s “Countdown” today what has been done in Europe is “just too little and too late” and that “there’s a significant likelihood that Europe will be facing a recession.”

A large part of the euro area may face recession and deflation next year if bond yields remain elevated for a number of European sovereigns, David Beers, global head of sovereign and international public finance ratings at Standard & Poor’s, said in a speech today in Dublin.

The region’s economy may expand just 0.5 percent in 2012 after growing 1.5 percent this year, the European Commission said on Nov. 10. It had previously forecast growth of 1.8 percent next year.

Markit Chief Economist Chris Williamson said in a statement that the euro-region economy will probably shrink about 0.6 percent in the current quarter. In the three months through September, it grew 0.2 percent.

“Malaise has spread from the periphery to the core,” he said. “Even Germany is stagnating.”

Manufacturing Drop

A gauge of euro-region manufacturing dropped to 46.4 in November from 47.1 in the previous month, Markit said. A measure of services rose to 47.8 from 46.4.

Companies around the globe may also be hurt by faltering demand in faster-growing economies. The World Bank said yesterday that growth in developing East Asia, excluding Japan, Hong Kong, Taiwan, South Korea, Singapore and India, will weaken in 2012.

China’s manufacturing may contract this month by the most since March 2009 as home sales slide, a preliminary purchasing managers’ index showed. The reading of 48 reported by HSBC Holdings Plc and Markit today compares with 51 last month.

U.S. gross domestic product rose at a 2 percent annual rate from July through September, less than projected and down from a 2.5 percent prior estimate, data showed yesterday.

Growth ‘Threats’

“The threats to global economic growth” are increasing, Kion Group GmbH, the world’s second-biggest maker of forklifts, said on Nov. 14. “The sovereign-debt crisis has heavily impacted global financial markets and is showing the first tangible signs of affecting the real economy.”

Some Federal Reserve policy makers said the central bank should consider easing policy further, according to minutes of their Nov. 1-2 meeting released yesterday. Bank of England policy makers this month unanimously maintained the target for asset purchases at 275 billion pounds ($428 billion), with some officials saying more stimulus may be needed in future, minutes of the decision released today showed.

The ECB unexpectedly lowered its benchmark interest rate by 25 basis points to 1.25 percent on Nov. 3 to help contain the crisis.

Today’s reports “keep pressure on the ECB to cut interest rates again in December,” said Howard Archer, chief euro-region economist at IHS Global Insight in London. There are signs the “euro zone is headed for clear economic contraction in the fourth quarter and so is in grave danger of sliding back into recession.”

--With assistance from Richard Weiss in Frankfurt, Kristian Siedenburg in Vienna, Dara Doyle in Dublin and Svenja O’Donnell in London. Editors: Jones Hayden, Fergal O’Brien

To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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