Business

Euro zone in recession, India slows

April 04, 2012

LONDON, April 4 — The euro zone’s services business remains mired in a mild recession but activity is perking up in Britain and is more robust in Asia, according to data today that underscored widening fault lines in a plodding global economy.

Sagging orders kept euro zone businesses in the doldrums in March, although companies became more confident that better times lay ahead, a survey showed. That contrasted with evidence of a slowdown in India and wilting business confidence.

The uneven data come a day after markets were jolted by news that the US Federal Reserve, while guarded on the clearly brighter economic prospects there, looks far from considering any more stimulus for the world’s largest economy.

Given that there are no concrete plans to stimulate growth in debt-ridden Europe, the onus remains firmly on developing nations such as China and India, which are slowing, to carry world economic growth.

Markit’s Eurozone Composite Purchasing Managers Index (PMI), which gauges how thousands of companies — from banks to hairdressers and restaurants — 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.

Although that was better than a preliminary reading of 48.7, survey compiler Markit said it probably consigned the euro zone to recession, defined as two consecutive quarters of contraction in gross domestic product.

“(It) suggests that the first quarter of 2012 was not as bad as the final quarter of 2011, but the last two months of surveys have been well below the upturn promised in January,” said economist Janet Henry, European economist at HSBC.

“The strength of service-sector business confidence raises hope for a future recovery.”

The services PMI, measuring the fortunes of the services sector was a little less gloomy than originally portrayed, rising to 49.2 from 48.8 in February, a substantial upwards revision from the 48.7 flash reading for March.

However, Europe’s problems look far from over. Spanish borrowing costs jumped at a bond auction today, jolting wider European markets, as this week’s tough budget failed to calm investors’ nerves about the country’s finances.

New business levels continued to shrink and at a faster pace last month, which does not bode well for April, although services companies sounded more upbeat about the future, with business expectations at an eight-month high.

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

That coincided 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.

But some euro zone countries are clearly doing better than others. Activity held essentially unchanged in France, while it picked up slightly in Germany. And the downturn in Spanish services activity, while still worrying, unexpectedly eased.

“The downturn is currently only very mild ... with gross domestic product probably falling by just 0.2 per cent in the first quarter,” said Markit’s Williamson, speaking about overall euro zone growth.

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

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.

UK and India

The UK services PMI, by contrast, taken together with manufacturing data earlier this week that also showed a better performance than the euro zone, suggested Britain’s economy expanded by 0.5 per cent in the first quarter, Markit said.

The Markit/CIPS services survey rose to 55.3 in March, well above 53.8 in February, confounding expectations of a decline to 53.4.

In India, a comparable report showed services growth slipped to a five-month low in March as business confidence faded to its weakest since 2009.

The HSBC Markit Business Activity index fell sharply to 52.3 in March from 56.5 the previous month. Growth in new business had powered the modest rise in activity until now. — Reuters

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