Euro-area services and manufacturing output contracted more than economists forecast in October and German business confidence dropped to the lowest in more than 2 1/2 years as Europe’s recession deepened.
A composite index based on a survey of euro-area purchasing managers in services and manufacturing fell to 45.8, the lowest in more than three years, from 46.1 in September, London-based Markit Economics said today. Economists had forecast a reading of 46.5, according to a Bloomberg News survey. A separate factory index in China rose. In Germany, the Ifo institute’s business climate index unexpectedly dropped to 100.0 from 101.4 in September.
The European Central Bank and the International Monetary Fund have both lowered their forecasts for the euro-area economy as governments cut spending to plug budget gaps, eroding consumer and export demand. Even so, the region’s debt burden rose to a record in the second quarter, reaching 90 percent of gross domestic product, another report showed today.
“The euro-zone recession is still getting worse,” said Holger Schmieding, chief economist at Berenberg Bank in London. “In a disappointing set of data, the fact that the Ifo expectations index did not decline further offers the only ray of hope. In this sense, the survey results today do not dispel the hope that the euro economy could turn the corner early next year.”
Ifo’s measure of executives’ expectations was unchanged at 93.2, while a gauge of the current situation dropped to 107.3 from 110.3.
The euro extended losses on the Ifo and PMI reports and ahead of the Federal Reserve’s policy decision later today. It traded 0.3 percent lower at $1.2943 at 11:45 a.m. in London. European stocks, which slumped 1.7 percent yesterday, advanced as technology companies rallied, with the Stoxx Europe 600 Index (SXXP) up 0.4 percent at 269.61.
In the U.S., the Fed Open Market Committee will decide on monetary policy at the conclusion of a two-day meeting later today, the last before the presidential election. Data on mortgage applications and new-home sales are also due.
A gauge of euro-area manufacturing dropped to 45.3 in October from 46.1 in the previous month, today’s report showed. That’s the lowest in two months. An indicator of services output rose to 46.2 from 46.1.
Germany’s manufacturing gauge dropped to 45.7 from 47.4, while the service indicator slipped to 49.3 from 49.7.
Euro-area governments may find it difficult to reduce deficits and lower their debt burdens, with at least five of the 17 nations using the single currency already in recession.
The ECB said in its quarterly projections published on Sept. 6 that the euro-area economy may contract 0.4 percent this year instead of a previously estimated 0.1 percent. That’s in line with the IMF’s latest forecast. Both institutions cut growth projections for next year.
“The euro zone has slid further into decline at the start of the fourth quarter,” said Chris Williamson, chief economist at Markit, in the statement. “While gross domestic product may decline only modestly in the third quarter, a steeper fall looks to be on the cards for the fourth.”
German economic growth slowed to 0.3 percent in the second quarter from 0.5 percent in the first. “There are increasing signs that a perceptible expansion of economic growth in the third quarter of 2012 will be followed by stagnation or even a slight decrease in gross domestic product in the final quarter of the year,” the Bundesbank said in its monthly report on Oct. 22.
German truckmaker MAN SE said on Oct. 12 that next year will be even tougher than 2012 after third-quarter orders slumped. The Munich-based company lowered its 2012 earnings forecast in July as weaker demand in Brazil added to woes in Europe.
Some companies are seeking to tap faster-growing markets to bolster sales.
Bayerische Motoren Werke AG, the world’s largest maker of luxury vehicles, will invest 200 million euros ($259 million) into a Brazil factory, Ian Robertson, head of sales and marketing told reporters on Oct. 22. German rival Volkswagen AG (VOW)’s Audi brand plans to produce cars at a plant in Mexico.
In China, an October manufacturing index rose and economists have pared forecasts for cuts in interest rates as confidence grows that the world’s second-biggest economy is stabilizing. The preliminary, or flash, reading was 49.1 for a purchasing managers’ index released today by HSBC Holdings Plc and Markit, after a final level of 47.9 in September.
ECB President Mario Draghi last month announced the details an unlimited bond-purchase program to regain control of interest rates in the euro area and fight speculation of a currency breakup. It’s now up to governments such as Spain to apply for aid from the region’s bailout fund to activate purchases.
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