Bloomberg News

Euro-Area Services Output Shrinks as Retail Sales Drop: Economy

May 06, 2013

Euro-Area Services, Manufacturing Shrink Less Than Estimated

An employee uses scissors to cut a section of leather hide used during the manufacture of handmade luxury gloves at the Causse Gantier factory in Millau, France. A measure of euro-area manufacturing output released on May 2 showed the industry contracted for a 21st straight month in April. Photographer: Balint Porneczi/Bloomberg

Euro-area services and manufacturing output shrank for a 15th straight month in April and retail sales fell in March as the 17-nation economy struggled to emerge from recession.

A composite index based on a survey of purchasing managers in the manufacturing and services industries increased to 46.9 last month from 46.5 in March, London-based Markit Economics said in a report today. While above an initial estimate of 46.5 published on April 23, it was still below 50, indicating contraction. Retail sales declined for a second month in March, another report showed.

The euro-area economy will shrink more than previously estimated in 2013 as part of a two-year slump that has pushed unemployment to a record high, the European Commission said on May 3. The European Central Bank last week reduced its key interest rate to an all-time low after confidence was shaken by political turmoil in Italy and a bailout of Cyprus.

“The financial markets appear to have survived (EUGNEMUQ:US) the government debt crisis, but the leading economic indicators have recently declined,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. There is “a significant risk that, contrary to analysts’ expectations, the economy will not pick up in the spring,” he said.

Stocks Decline

The euro pulled off its lows against the U.S. dollar after the PMI data. The European currency traded at $1.3107 at 11 a.m. in Brussels, down 0.1 percent on the day, after trading as low as $1.3093 earlier. The European stocks fell, with the Stoxx Europe 600 Index down 0.1 percent.

The euro-area services PMI rose to 47 in April from 46.4 in March, improving on an initial estimate of 46.6. Still, the manufacturing PMI released on May 2 showed the industry contracted for a 21st straight month in April, with the gauge declining to 46.7 from 46.8 in March.

Today’s report “suggests that, having eased in the first quarter of the year, the euro zone’s economic downturn is likely to have gathered momentum again in the second quarter,” Chris Williamson, chief economist at Markit, said in the report. “The PMI is broadly consistent with GDP falling at a quarterly rate of 0.4 percent to 0.5 percent in April.”

Retail Sales

Euro-area retail sales fell 0.1 percent in March after a 0.2 percent drop in February, the European Union’s statistics office in Luxembourg said in a separate report today.

The euro economy has contracted for five quarters and the trend is forecast to continue into 2013. Economists in a Bloomberg survey published on April 11 estimated that euro-zone gross domestic product shrank 0.1 percent in the first quarter. The GDP data are due on May 15.

Air France-KLM Group (AF), Europe’s largest airline, said on May 3 that it was operating in a “difficult and uncertain environment” and refrained from giving an earnings outlook. Carrefour SA, France’s biggest retailer, on April 18 reported weaker first-quarter sales amid cold weather and slow consumption in Europe.

Growth in China’s services industry slowed in April, according to a separate report compiled by Markit. The HSBC China Services PMI fell to 51.1 last month from 54.3 in March. The April reading is the lowest since August 2011.

Asian Data

Elsewhere in Asia, Australian retail sales unexpectedly fell in March and job advertisements dropped for a second month, sending the currency lower as traders see a 50-50 chance the central bank will resume cutting interest rates tomorrow.

Indonesia’s economy grew at the slowest pace in more than two years last quarter as weaker exports and government spending countered gains in consumption and investment.

In Europe, the Brussels-based commission now forecasts euro-area GDP will fall 0.4 percent this year, compared with a February prediction of a 0.3 percent drop. That would follow a 0.6 percent contraction in 2012 and shows the currency bloc headed for its first back-to-back years of falling output since the euro made its debut in 1999.

Unemployment is expected to climb to 12.2 percent in 2013 from 11.4 percent last year, according to the commission’s May 3 forecasts.

The weakness in Europe’s economy prompted the ECB’s Governing Council to cut its benchmark rate on May 2 to a record low 0.5 percent from 0.75 percent, the first rate reduction since July last year. ECB President Mario Draghi said the risks to the economic outlook for the region are “on the downside.”

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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