Euro-Area Services, Manufacturing Contraction Eases

Friday, 14 Dec 2012 07:36 AM


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Euro-area services and manufacturing output contracted at a slower pace than economists forecast in December as European leaders declared progress on the latest plan to combat the debt crisis, now entering its fourth year.

A composite index based on a survey of purchasing managers in both industries rose to 47.3 from 46.5 in November, London-based Markit Economics said Friday. Economists had forecast a November reading of 46.9, according to the median of 16 estimates a Bloomberg News survey. A reading below 50 indicates contraction. A separate report showed European car sales fell 10 percent in November, bringing registrations so far this year to a 19-year low.

European finance ministers Thursday declared a two-front victory over the fiscal turmoil, assuring a lifeline to Greece and laying the groundwork for a single bank supervisor. Government leaders early this morning pledged to seek a joint strategy for handling failing lenders as the next step toward banking union. The European Central Bank last week left its benchmark rate unchanged as risks to the economy led policy makers to debate a reduction.

“The rate of contraction in output at the euro-zone level is diminishing,” said Ken Wattret, chief euro region economist at BNP Paribas SA in London. “The marked improvement in financial-market conditions and now some improvement in economic conditions mean the likelihood of the European Central Bank cutting rates again have diminished.”

Services Index

The euro-area services index increased to 47.8 in December from 46.7 in November, Markit said. The manufacturing gauge rose to 46.3 from 46.2.

A separate report showed euro-area inflation slowed in November as energy-price growth eased. The annual inflation rate in the 17-nation currency bloc fell to 2.2 percent, in line with an initial estimate on Nov. 30, from 2.5 percent in October.

In Europe, while financial-market tensions stemming from the debt turmoil have abated, economies are still faltering. The ECB last week forecast the euro-area economy will shrink 0.5 percent this year and 0.3 percent in 2013. The sovereign-debt crisis has pushed at least six of the 17 euro nations into recession and is curbing growth in its largest economies. The ECB held its key rate at 0.75 percent last week.

‘Bottomed Out’

Economists’ view for the euro area has also worsened. The median forecast of economists in a Bloomberg survey is for a contraction of 0.1 percent next year. In November, they had projected 0.1 percent growth.

“The economy seems to have bottomed out and the pace of decline of activity has moderated,” Annalisa Piazza, an analyst at Newedge Strategy in London, said in an e-mailed statement. “The composite index has remained in contraction territory for 11 straight months, a sign that the EMU economy is far from a sound and sustainable recovery.”

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