Bloomberg News

Euro-Area Manufacturing, Services Shrink More Than Estimated

January 04, 2013

Euro-Area Manufacturing, Services Shrink More Than Estimated

A waiter stands and waits for customers beneath a parasol at an empty cafe terrace in Madrid. Photographer: Angel Navarrete/Bloomberg

European services and factory output contracted more than initially estimated in December, adding to signs a recession in the region may extend into this year.

A composite index based on a survey of purchasing managers in both industries was revised down to 47.2 from an initial estimate of 47.3 published on Dec. 14, London-based Markit Economics said in a report today. That compares with 46.5 in November. A reading below 50 indicates contraction.

The euro area is struggling to pull out of its second recession in four years as governments cut spending to combat the sovereign debt crisis and consumers curtail spending. Economists foresee a further drop in gross domestic product in the final three months of 2012 and the European Central Bank forecasts a contraction of 0.3 percent in 2013.

“The improvements in December are unlikely to prevent the euro-zone economy having contracted at a sharper rate in the fourth quarter,” Chris Williamson, Markit’s chief economist, said in today’s report. “Strong growth disparities are likely to persist for some time.”

The euro extended losses after the report and traded at $1.3009 at 10:16 a.m. in Brussels, down 0.3 percent.

A gauge of euro-region services production rose to 47.8 from 46.7 in November, while a measure of manufacturing output released on Jan. 2 showed the industry contracted more than initially estimated.

Fastest Pace

This week has produced signs of some stabilization in global growth as U.S. manufacturing picked up in December after dropping to a three-year low and China’s services industry grew at the fastest pace in four months.

The Stoxx 600 has rallied about 14 percent since European Central Bank President Mario Draghi said in July that he would do whatever it takes to save the euro. He announced an unlimited government bond-purchase program in September and German Chancellor Angela Merkel said on Dec. 31 that progress is being made on the latest plan to combat the debt turmoil.

Data yesterday showed German unemployment increased less than economists had forecast in December and business confidence in Europe’s largest economy rose for a second month after demand from outside Europe boosted factory orders and exports.

Williamson said today’s Markit surveys “bring some substance to the belief that the worst is over and that a return to growth is in sight for the region in 2013.”

‘Far From Over’

Still, Merkel said that while reforms aimed at tackling the debt crisis “are starting to take effect,” the turmoil is “far from over” and economic conditions will be more difficult this year than in 2012.

The euro region’s jobless rate rose to a record 11.7 percent in October, the highest since the data series started in 1995. Eurostat, the European Union’s statistics office, will publish November data on Jan. 8.

Accenture Plc (ACN:US), incorporated in Dublin and the world’s second-largest technology consulting company after International Business Machines Corp., reported first-quarter sales on Dec. 19 that missed analysts’ estimates as customers put off investment.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

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


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