BLBG:Euro-Area Services, Manufacturing Shrink More Than Estimated
Euro-area services and manufacturing output contracted more than economists forecast in March on declining domestic demand, adding to signs that the region’s economy is sliding into recession.
A euro-area composite index based on a survey of purchasing managers in both industries dropped to 48.7 from 49.3 in February, London-based Markit Economics said in an initial estimate today. Economists forecast a gain to 49.6, according to the median of 21 estimates in a Bloomberg News survey. A reading below 50 indicates contraction.
The drop in the composite index “is clearly a disappointment following the brief return to growth seen in January, and suggests that policy makers will need to seek ways to revive economic growth across the region again,” Chris Williamson, chief economist at Markit, said in today’s report.
The European Central Bank on March 8 raised its inflation forecasts for this year and next and said it expects the economy to shrink about 0.1 percent in 2012. It had previously projected an expansion of 0.3 percent.
The euro extended losses after the data were released, trading at $1.3162 at 11:12 a.m. in Brussels, down 0.4 percent.
‘Very Mild’ Downturn
A gauge of euro-region manufacturing fell to 47.7 in March from 49 in February, Markit said. A measure of services declined to 48.7 from 48.8.
Williamson said the euro-region economy has probably fallen into recession after a contraction of 0.3 percent in the fourth quarter.
“The downturn is only very mild at the moment, with the PMI signaling a drop in GDP of approximately 0.1 percent to 0.2 percent, and an upturn in business confidence in the service sector provides hope that conditions may improve again later in the year,” Williamson said.
Europe’s economy is regaining some strength after shrinking in the fourth quarter as reviving global demand helps soften the impact of budget cuts across the region. Euro-area economic confidence improved in February, German investor sentiment surged to a 21-month high this month and the Stoxx Europe 600 Index has gained 15 percent since mid-December.
‘Cost Reduction’
“However, firms are clearly focusing on cost reduction, with employment falling at the fastest rate for two years as inflows of new business continued to deteriorate, reflecting weak demand across the region,” Williamson said.
Euro-region industrial output rebounded in January from a slump in the previous month. In Germany, business confidence increased for a fourth month in February and European investors grew more confident in March.
Stephane Deo, an economist at UBS AG in London, said on March 16 that “some things have not turned out quite as negatively as feared a couple of quarters back.” He now expects the euro-region economy to shrink 0.4 percent this year instead of a previously projected 0.7 percent, before expanding 1.1 percent in 2013.
Hugo Boss AG (BOS), the German luxury clothing maker controlled by buyout firm Permira Advisers, said on March 14 that operating profit may rise by more than 10 percent this year, helped by demand in Asian markets. Bayerische Motoren Werke AG (BMW), the world’s largest maker of luxury vehicles, said on March 13 it plans to surpass last year’s record profit in 2012.
‘Promising Start’
“We are off to a promising start” with car sales in the first two months of the year at an all-time high,” BMW Chief Executive Officer Norbert Reithofer said. Still, “markets and consumers alike remain uneasy about the significant public debt and the euro crisis,” he said.
European efforts to tackle the debt crisis advanced over the past month, as Greece reached a debt-swap deal with its private creditors and officials approved a second bailout. The ECB, which supported the region’s economy with measures including a record 1 trillion euros ($1.3 trillion) in three- year loans to banks, on March 8 kept its benchmark interest rate at a record low of 1 percent.
ECB council member Erkki Liikanen said in an interview on March 15 that the central bank “has done its part, the governments must do theirs.”
“We have been able to produce, from a market viewpoint, a decisive change in market sentiment,” he said. “For the fiscal side, for the deficits, for the long-term fiscal debt, it’s in the hands of governments and that belongs to them -- and only them.”
To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
