October 24, 2012 / 8:22 AM / 5 years ago

October PMIs suggest euro zone downturn deepening

5 Min Read

A woman checks job offers in downtown Milan April 3, 2012.Alessandro Garofalo

LONDON (Reuters) - Euro zone businesses in October suffered their worst month since the bloc emerged from its last recession more than three years ago, forcing them to cut more jobs to reduce costs, surveys showed on Wednesday.

The downturn that began in smaller periphery countries is now gripping Germany and France, dragging the euro zone as a whole deeper into the quagmire.

Markit's Composite Purchasing Managers' Index (PMI), which polls around 5,000 businesses across the 17-nation bloc and is viewed as a reliable growth indicator, fell to 45.8 this month from a September reading of 46.1.

It is the lowest reading since June 2009 and confounded consensus expectations in a Reuters poll for a rise to 46.4. The index has now been below the 50 mark that separates growth from contraction since February.

"It's very disappointing, it's a depressing scenario as things are getting worse," said Chris Williamson, chief economist at data collator Markit.

"We are more downbeat than the official data. The PMIs are running at levels in the third quarter and start of the fourth quarter historically consistent with GDP falling at about 0.6 percent."

Williamson said while the official data implied a more modest decline of 0.2-0.3 percent in the third quarter, the PMIs suggested the downturn would accelerate into the current quarter, a far gloomier outlook than the stagnation predicted by a Reuters poll last week. <ECILT/EU>

The economy contracted 0.2 percent in the second quarter and is predicted to have shrunk 0.3 percent in the third, meeting the technical definition of a recession.

A three-year old debt crisis has wreaked havoc across the region, weighing on the global economy in turn. While the European Central Bank has launched measures to contain it there is a risk it will flare up again.

The ECB has pledged to buy an unlimited amount of bonds to lower struggling euro zone countries' borrowing costs. It has cut interest rates to a record low of 0.75 percent and will probably cut another 25 basis points by year-end. <ECB/INT>

In Germany, Europe's largest economy, the composite PMI spent its sixth month below 50. In France the index was below the break-even mark for the eighth month.

Deeper Despair

The PMI for the dominant services sector nudged up to 46.2, missing expectations for a bigger rise to 46.4 from September's 46.1. That came despite services firms cutting the prices they charge for the 11th straight month.

Pessimism amongst them grew deeper this month, with the business expectations index falling sharply to 47.8, the lowest reading since February 2009 when the bloc was at the nadir of the last recession and world stock markets were tumbling.

Manufacturers fared little better, with the factory PMI notching up its 15th month below 50, sinking to 45.3 from 46.1. The consensus from a Reuters poll had predicted a climb to 46.5.

An output index for the sector, which drove a large part of the bloc's recovery from the last recession, fell to 44.8 from last month's 45.9.

Manufacturers were just as gloomy about the future as they ran down stock levels at the fastest pace since December 2009, with the sub index plummeting to 43.5 from 46.5, matching the third-biggest monthly drop in the survey's 15-year history.

Also highlighting the despair, firms cut their workforces for the 10th month, albeit at a slower pace. The composite employment index rose to 47.1 from last month's 46.4.

Official data released earlier this month showed unemployment at 11.4 percent in August, the highest level since the bloc's inception in 1999.

"There is nothing specific that is making businesses gloomier - it is a much more general widespread gloom," Williamson said.

"Businesses are very much in cost-cutting, retrenchment mode, battening down the hatches because they don't know what the outlook is."

- Detailed PMI data are only available under license from Markit and customers need to apply to Markit for a license.

To subscribe to the full data, click on the link below: http://www/markit.com/information/register/reuters-pmi-subscriptions

For further information, please phone Markit on +44 20 7260 2454 or email economics@markit.com

Editing by Hugh Lawson

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