THE escalating sovereign debt crisis has already pushed the euro zone economy into a contraction that could be far worse than economists expected, business surveys suggested yesterday.
Markit’s euro-zone composite purchasing managers index (PMI), which measures changes in business activity across the region, showed the euro zone’s private sector economy contracting for the third month in a row last month. While rising slightly to 47 from 46,5 in October, the PMI was still far below the 50 mark that divides growth from contraction.
Survey compiler Markit said last month’s composite PMI put the euro zone on course for a 0,6% economic contraction in the fourth quarter.
"The major euro-zone countries are all now contracting and face the risk of recession," Markit chief economist Chris Williamson said yesterday.
"Italy is faring the worst, with the survey suggesting that gross domestic product (GDP) could collapse by 1% in the fourth quarter, while both France and Spain are likely to see their economies contract by about 0,5%."
Germany — the euro zone’s biggest economy and the key stakeholder of any debt crisis cure — was suffering only a mild downturn, but a steep drop in new orders reported by factories last month signalled worse to come.
The labour market in the euro zone continued to stagnate last month, the survey showed, with the composite PMI employment index staying put at 50,1.
The PMI for the services industries, which make up the bulk of the euro-zone economy, ticked up to 47,5 last month from 46,4 in October, although the latest figure was revised down from a preliminary 47,8.
"Service providers remained worried about the impact of the escalating debt crisis and the darkening economic outlook," Mr Williamson said. "Particularly steep downturns are occurring in Spain and Italy, while the French and German services economies are more or less stagnating."
An HSBC purchasing managers’ index showed yesterday that China’s services sector cooled last month to its weakest growth in three months, portraying an economy slowing quickly and in need of policy support.
The index fell to 52,5, a sharp decline given that October’s reading was 54,1 — the highest level in four months.
"With price pressures easing further, Beijing can and should use policies that are targeted on small businesses and service sectors to keep GDP growth at above 8% for the coming year," Qu Hongbin, HSBC’s chief China economist, said.
China’s official PMI for its non- manufacturing sector, released on Saturday, fell to 49,7 last month from 57,7 in October, the China Federation of Logistics and Purchasing said. Reuters
