Germany's economic
slide is likely to drag the whole of the eurozone deeper into recession,
say analysts. Photograph: Boris Roessler/EPA
The eurozone's private sector shrank for the 15th consecutive
month in April – suggesting the single currency area will fall deeper
into recession.
Germany, the powerhouse of the eurozone, also suffered a contraction in business activity during the month, which could send a worrying signal for the rest of the bloc.
An official indication of eurozone GDP is due next week and on Monday the president of the European Central Bank, Mario Draghi, stressed that the policymakers would be ready to cut rates again after taking a quarter of a percentage point off the benchmark rate to a record low of 0.5% last week.
"We stand ready to act again," Draghi said in remarks that knocked the euro lower. Wall Street, meanwhile, remained close to last week's record highs.
Tim Moore, a senior economist at Markit, said prospects for Germany's service sector were increasingly gloomy. "A renewed slide in services output during April, alongside falling manufacturing production, raises the risk that the German economy will fail to expand over the second quarter," he said.
Data gauging the level of activity across thousands of companies and regarded as a good indicator of general economic conditions came in below the crucial level of 50, which separates contraction from expansion. At 46.9 in April, Markit's eurozone composite purchasing manager's index (PMI) was an improvement on initial readings of 46.5 and March's output of 46.5 but it has been below 50 for more than a year.
Germany's PMI, which measures growth in manufacturing and services and accounts for more than two-third's of Germany's GDP, fell to 49.2.
Germany's economy performed well during the first two years of the eurozone crisis, but growth slowed last year as it was knocked by the slowdown in China. The services sector fell to 49.6 last month from 50.9 in March – the first contraction since November. Germany's wobble is likely to drag the whole of the eurozone deeper into recession, Markit warned. "The eurozone's economic downturn is likely to have gathered momentum again in the second quarter," Chris Williamson, its chief economist, said. "The PMI is broadly consistent with GDP falling at a quarterly rate of 0.4%-0.5% in April."
Howard Archer, chief UK and European economist at IHS Global Insight, said: "The latest data and survey evidence fuel concern that the eurozone is headed for further GDP contraction in the second quarter after highly likely suffering a sixth successive quarter of contraction in the first quarter of 2013."
The European commission last week warned that it expects the eurozone's GDP to shrink by 0.4% in 2013, an increase on the 0.3% it had previously forecast. The recovery pencilled in for 2014 will also be slower than expected and the unemployment crisis in the eurozone will persist, the commission said in its spring forecasts.
ECB executive board member Benoît Cœuré had also indicated that the central bank would be ready to cut interest rates further if the economic outlook in the euro area worsens. "It's a historic low and we'll cut again if indicators confirm the situation is deteriorating," Cœuré said in an interview with France Inter radio station on Monday.
Williamson said it was difficult to believe that a mere 25 basis point cut from an already low level will have "a material impact on an economy that is contracting so sharply".
In further gloomy news, a separate EU report published on Monday showed retail sales across the eurozone dropped 0.1% in March following a 0.2% fall in February.
There were also fears that the service sector is slashing prices to drum up business. Official figures released last week showed prices across the region rose 1.2% in April – well below the central bank's 2% target – while unemployment hit a new high of 12.1%.
An index that measures sentiment in the eurozone improved, but illustrated concerns about Germany. "While investors' assessments of the economy for the eurozone are stabilising, those for Germany are clouding a little, albeit at a significantly higher level," research group Sentix said.
Germany, the powerhouse of the eurozone, also suffered a contraction in business activity during the month, which could send a worrying signal for the rest of the bloc.
An official indication of eurozone GDP is due next week and on Monday the president of the European Central Bank, Mario Draghi, stressed that the policymakers would be ready to cut rates again after taking a quarter of a percentage point off the benchmark rate to a record low of 0.5% last week.
"We stand ready to act again," Draghi said in remarks that knocked the euro lower. Wall Street, meanwhile, remained close to last week's record highs.
Tim Moore, a senior economist at Markit, said prospects for Germany's service sector were increasingly gloomy. "A renewed slide in services output during April, alongside falling manufacturing production, raises the risk that the German economy will fail to expand over the second quarter," he said.
Data gauging the level of activity across thousands of companies and regarded as a good indicator of general economic conditions came in below the crucial level of 50, which separates contraction from expansion. At 46.9 in April, Markit's eurozone composite purchasing manager's index (PMI) was an improvement on initial readings of 46.5 and March's output of 46.5 but it has been below 50 for more than a year.
Germany's PMI, which measures growth in manufacturing and services and accounts for more than two-third's of Germany's GDP, fell to 49.2.
Germany's economy performed well during the first two years of the eurozone crisis, but growth slowed last year as it was knocked by the slowdown in China. The services sector fell to 49.6 last month from 50.9 in March – the first contraction since November. Germany's wobble is likely to drag the whole of the eurozone deeper into recession, Markit warned. "The eurozone's economic downturn is likely to have gathered momentum again in the second quarter," Chris Williamson, its chief economist, said. "The PMI is broadly consistent with GDP falling at a quarterly rate of 0.4%-0.5% in April."
Howard Archer, chief UK and European economist at IHS Global Insight, said: "The latest data and survey evidence fuel concern that the eurozone is headed for further GDP contraction in the second quarter after highly likely suffering a sixth successive quarter of contraction in the first quarter of 2013."
The European commission last week warned that it expects the eurozone's GDP to shrink by 0.4% in 2013, an increase on the 0.3% it had previously forecast. The recovery pencilled in for 2014 will also be slower than expected and the unemployment crisis in the eurozone will persist, the commission said in its spring forecasts.
ECB executive board member Benoît Cœuré had also indicated that the central bank would be ready to cut interest rates further if the economic outlook in the euro area worsens. "It's a historic low and we'll cut again if indicators confirm the situation is deteriorating," Cœuré said in an interview with France Inter radio station on Monday.
Williamson said it was difficult to believe that a mere 25 basis point cut from an already low level will have "a material impact on an economy that is contracting so sharply".
In further gloomy news, a separate EU report published on Monday showed retail sales across the eurozone dropped 0.1% in March following a 0.2% fall in February.
There were also fears that the service sector is slashing prices to drum up business. Official figures released last week showed prices across the region rose 1.2% in April – well below the central bank's 2% target – while unemployment hit a new high of 12.1%.
An index that measures sentiment in the eurozone improved, but illustrated concerns about Germany. "While investors' assessments of the economy for the eurozone are stabilising, those for Germany are clouding a little, albeit at a significantly higher level," research group Sentix said.
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