Business | Economy

Euro zone return to growth unlikely this year

New orders shrink and layoffs rise

  • Reuters
  • Published: 19:01 October 3, 2012
  • Gulf News

London: Dwindling new orders and faster layoffs marked a worsening decline for euro zone companies last month, according to business surveys that dent hopes the economy will return to growth before 2013.

Wednesday’s purchasing managers indexes (PMIs) suggested it was almost inevitable the euro zone returned to recession in the third quarter.

A good gauge of economic growth, Markit’s Eurozone Composite PMI fell to 46.1 in September from 46.3 in August.

While revised up slightly from a preliminary reading two weeks ago, the index has been stuck below the 50 mark that divides growth and contraction for all but one of the last 13 months.

Order books shrank last month at the fastest pace in more than three years, while firms cut staff at the fastest pace since January 2010.

Overall, the surveys suggested aggressive action from the European Central Bank over the last two months has yet to lift the real economy in any meaningful sense.

“Rather than clearing, the cloud of uncertainty hanging over business investment and spending got notably darker in September,” said Chris Williamson, chief economist from Markit, which compiles the data.

“There therefore seems little scope for a return to growth in the fourth quarter.”

Although the German downturn eased last month, Williamson said hopes for an imminent recovery were dealt a blow by steeper declines for firms in France, Italy and Spain — the euro zone’s three largest economies after Germany.

The services PMI fell to 46.1 from 47.2 in August, its worst showing in more than three years.

Businesses ranging from banks to restaurants were less confident about the year ahead than at any time since early 2009, when the economy was still racked by its worst recession since World War Two.

With the euro zone unemployment rate holding at a record high 11.4 per cent in August, hopes of a swift turnaround led by consumers look remote, for at least this year.

“The uncertainty is perhaps whether policymakers will be able to induce an improvement in business and consumer confidence to help ease the rate of decline, or whether the pace of downturn will accelerate further towards the end of the year,” said Williamson.

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