Bloomberg News

Euro-Area Services, Manufacturing Contract for Sixth Month

August 03, 2012

Euro-area services and manufacturing output contracted for a sixth month in July, adding to signs the economy is edging toward a recession.

A composite index based on a survey of purchasing managers in both industries rose to 46.5 from 46.4 in June, London-based Markit Economics said in a final report today. Markit had initially reported a reading of 46.4 for July. A reading below 50 indicates contraction.

“With incoming new business falling at the fastest rate for three years and service sector companies becoming the gloomiest about the outlook since early 2009, there seems little prospect of any improvement soon,” Chris Williamson, Markit’s chief economist, said in today’s report.

Europe’s economy probably contracted 0.2 percent in the second quarter after stagnating in the first three months, according to the median forecast in a Bloomberg News survey of 21 economists last month. Budget cuts have eroded consumer spending just as companies stepped up job cuts and global demand faltered.

European Central Bank President Mario Draghi yesterday signaled the ECB intends to join forces with governments to buy bonds in sufficient quantities to ease the euro area’s debt crisis. Central banks from the Bank of England to the Federal Reserve have in recent weeks increased stimulus, with the Fed this week pledging new policy steps as needed.

‘Irreversible’ Euro

The euro area is “seemingly headed for further gross domestic product contraction in the third quarter after a highly probable appreciable drop in the second quarter,” said Howard Archer, an economist at Global Insight Ltd. “We expect the ECB to trim interest rates sooner rather than later. We favor a move in October, but would certainly not rule out a move as soon as September.”

Draghi said yesterday the euro was “irreversible” He signaled the new measures as the debt crisis threatens to cripple Spain and Italy and break up the common currency.

A gauge of euro-area manufacturing fell for a twelfth month in July to a 37-month low of 44 from 45.1 in June, Markit said on Aug. 1. An indicator of services output rose to 47.9 from 47.1, according to today’s report.

ProSiebenSat.1 Media AG, Germany’s biggest private broadcaster, said yesterday ad sales in its home market declined. The Unterfoehring-based company’s Chief Executive Officer Thomas Ebeling told reporters yesterday that he expects advertising revenue in Germany to decline in the third quarter.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

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


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