Eurozone back in recession? Declining PMI suggests so

Sagging orders kept eurozone businesses in the doldrums in March, probably pushing the region into a mild recession although companies became more confident that better times lie ahead, a survey showed on Wednesday.

Markit’s Eurozone Composite Purchasing Managers Index (PMI), which gauges how thousands of companies fare each month, edged down to 49.1 in March from 49.3 in February, slipping further below the 50 mark that divides growth from contraction.

[caption id=“attachment_266268” align=“alignleft” width=“380” caption=“The manufacturing sector contracted for an eighth straight month in March, in contrast with Chinese and American factories. Reuters”]  [/caption]

Although that was better than a preliminary reading of 48.7, survey compiler Markit said it probably consigned the eurozone to its recession, defined as two consecutive quarters of negative quarterly gross domestic product.

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Even so, the latest batch of PMIs weren’t completely gloomy. Business expectations for the year ahead hit an eight-month high in the service sector, which accounts for the bulk of the euro zone economy.

“A slight easing in the rate of decline of the euro zone service sector was insufficient to offset the first decline in manufacturing output for three months, causing the overall economy to contract again in March,” said Chris Williamson, chief economist at Markit.

The manufacturing sector contracted for an eighth straight month in March, in contrast with Chinese and American factories which saw an increase in activity.

“The downturn is currently only very mild, however, with gross domestic product probably falling by just 0.2 per cent in the first quarter,” said Williamson.

That tallies with a Reuters poll of economists taken two weeks ago, which projected the euro zone economy would stagnate in the second quarter.

But even stagnation will require an improvement in companies’ order books, which shrank again in March. The composite new orders index sank to 47.6 from 48.5, marking its eighth month below the breakeven 50 level.

The survey measuring the fortunes of the services sector was a little less gloomy than originally portrayed by a preliminary reading two weeks.

The services PMI rose to 49.2 from 48.8 in February, a substantial upwards revision from the 48.7 flash reading for March.

New business levels continued to shrink and at a faster pace last month, which does not bode well for April, although services firms sounded more upbeat about the future.

The business expectations index rose to 60.6 in March, its highest reading in eight months, coinciding with a new tranche of three-year loans given to banks by the European Central Bank in February, worth more than half a trillion euros.

“With business confidence in the service sector running at a far higher level than late last year, the recession may also be brief,” said Williamson.

Employment in the services sector fell across the region for a third month, although Germany bucked that trend by posting its best upturn in jobs in the year to date, Markit said.

Eurozone unemployment hit its highest level in almost 15 years in February, with more than 17 million people out of work - a jobless rate of 10.8 per cent.

Reuters