LONDON—The euro zone's private sector contracted in April at the sharpest pace since November, damaged by a steep decline in the manufacturing sector, suggesting the region won't rebound quickly from the recession recent data are pointing to.
And, with new orders falling, input prices rising and firms cutting jobs as confidence weakens, the second part of the likely double-dip recession may be as debilitating as the first. The euro zone emerged from the latest recession in the third quarter of 2009.
The preliminary composite PMI for the euro zone slumped to 47.4 in April from March's 49.1, Markit's preliminary purchasing managers' index showed Monday.
The April manufacturing PMI slipped to 46 from March's 47.7 while the services PMI also declined to 47.9 from 49.2 over the same period, data from the statistical database firm showed.
A level above 50 signals an expansion in activity, while a level below 50 signals a contraction.
"The euro zone 'flash' PMIs signal that the euro zone is sliding deeper into contraction territory again in April, with the deterioration spreading across the manufacturing and the service sectors," said Evelyn Herrmann, European economist for BNP Paribas.
"The start in the second quarter of this year is not so good for the euro zone....This makes a return to growth in this quarter very challenging."
"The flash PMI signaled a faster rate of economic contraction in the euro zone during April, extending what appears to be a double-dip recession into a third consecutive quarter," said Chris Williamson, chief economist at Markit.
"Prospects also do not look good. Business confidence slumped lower and companies cut head counts at the fastest rate since early 2010 in order to reduce capacity to meet lower workloads."
Other data released from Italy and France echo the weakness of the preliminary PMIs. Italian consumer confidence slumped to 89 in April, the lowest level since 1996 and compared with 96.3 in March.
An Istat official said there has "been a wave of pessimism in all sectors", and this was especially prevalent in the employment prospects component which rose sharply showing a greater number of consumers expect unemployment to surge in the coming months. French business sentiment, meanwhile, slid to 95 in April from 98 a month earlier.
This is inline with the euro-zone PMI survey and indicates a tough time ahead for the common-currency region. The country breakdown available at this stage indicates a weak performance across the board, save for the German services sector.
Although even in Germany April's reading of 52.6 was only a small improvement from 52.1 a month earlier and comes amid a stagnation of new orders compared with a month earlier. The preliminary French survey was particularly weak.
The composite measure slid one point to a six month low of 46.8, reflecting a weak services sector performance, Markit said.
Manufacturing in both Germany and France remained firmly in contractionary territory, with the German decline to 46.4 the weakest since July 2009. That was particularly disappointing as trade with Asian and U.S. markets improved, but it also highlights just how weak the European markets are.
The one mildly less disappointing news was that while input prices continued to rise in April, they did so at the slowest pace since January.
This leaves the European Central Bank room to try and support economic growth by cutting its key interest rate from the current 1%, economists say.
"The purchasing managers' surveys put real pressure on the ECB to take interest rates lower and we believe that the bank should be fully prepared to trim interest rates further if euro zone economic activity does not show any sign of improvement in the near term," said Howard Archer, chief euro zone and U.K. economist for IHS Global Insight.
The euro-zone PMIs are based on data from Germany, France, Italy, Spain, Ireland, Austria, Greece and the Netherlands.
wsj.com
And, with new orders falling, input prices rising and firms cutting jobs as confidence weakens, the second part of the likely double-dip recession may be as debilitating as the first. The euro zone emerged from the latest recession in the third quarter of 2009.
The preliminary composite PMI for the euro zone slumped to 47.4 in April from March's 49.1, Markit's preliminary purchasing managers' index showed Monday.
The April manufacturing PMI slipped to 46 from March's 47.7 while the services PMI also declined to 47.9 from 49.2 over the same period, data from the statistical database firm showed.
A level above 50 signals an expansion in activity, while a level below 50 signals a contraction.
"The euro zone 'flash' PMIs signal that the euro zone is sliding deeper into contraction territory again in April, with the deterioration spreading across the manufacturing and the service sectors," said Evelyn Herrmann, European economist for BNP Paribas.
"The start in the second quarter of this year is not so good for the euro zone....This makes a return to growth in this quarter very challenging."
"The flash PMI signaled a faster rate of economic contraction in the euro zone during April, extending what appears to be a double-dip recession into a third consecutive quarter," said Chris Williamson, chief economist at Markit.
"Prospects also do not look good. Business confidence slumped lower and companies cut head counts at the fastest rate since early 2010 in order to reduce capacity to meet lower workloads."
Other data released from Italy and France echo the weakness of the preliminary PMIs. Italian consumer confidence slumped to 89 in April, the lowest level since 1996 and compared with 96.3 in March.
An Istat official said there has "been a wave of pessimism in all sectors", and this was especially prevalent in the employment prospects component which rose sharply showing a greater number of consumers expect unemployment to surge in the coming months. French business sentiment, meanwhile, slid to 95 in April from 98 a month earlier.
This is inline with the euro-zone PMI survey and indicates a tough time ahead for the common-currency region. The country breakdown available at this stage indicates a weak performance across the board, save for the German services sector.
Although even in Germany April's reading of 52.6 was only a small improvement from 52.1 a month earlier and comes amid a stagnation of new orders compared with a month earlier. The preliminary French survey was particularly weak.
The composite measure slid one point to a six month low of 46.8, reflecting a weak services sector performance, Markit said.
Manufacturing in both Germany and France remained firmly in contractionary territory, with the German decline to 46.4 the weakest since July 2009. That was particularly disappointing as trade with Asian and U.S. markets improved, but it also highlights just how weak the European markets are.
The one mildly less disappointing news was that while input prices continued to rise in April, they did so at the slowest pace since January.
This leaves the European Central Bank room to try and support economic growth by cutting its key interest rate from the current 1%, economists say.
"The purchasing managers' surveys put real pressure on the ECB to take interest rates lower and we believe that the bank should be fully prepared to trim interest rates further if euro zone economic activity does not show any sign of improvement in the near term," said Howard Archer, chief euro zone and U.K. economist for IHS Global Insight.
The euro-zone PMIs are based on data from Germany, France, Italy, Spain, Ireland, Austria, Greece and the Netherlands.
wsj.com
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