A (source: Markit)
A series of business surveys that were released out of the Eurozone today indicated recovery in the area lost steam in November, fuelling concerns over another recession. Business growth was weaker-than-forecast this month and new orders have fallen for the first time in more than a year.
The Purchasing Managers’ Index published by Markit showed that the flash composite number for the Eurozone dropped to 51.4 points in November from 52.1 in October. Although the figure is above 50 points which indicates expansion as opposed to contraction, the fact that the number fell to a 16-month low is concerning. The risk of a recession is bigger due to the fact that recent GDP data have been weak as well. Third quarter GDP figures released last week showed a mere 0.2% growth rate in the Euro area.
Markit’s chief economist Chris Williamson commented on how the decline in PMI would affect the growth rate.
“A fall in the Eurozone PMI to a 16-month low raises the risk of the region slipping back into a renewed downturn. The single currency area is struggling to eke out any growth, with the PMI indicating that GDP is likely to have risen by just 0.1-0.2% in the fourth quarter. A drop in new orders for the first time in almost one-and-a-half years, albeit only very marginal, suggests growth could slow further in December.” William said.
Meanwhile, the Eurozone’s dominant service industry also showed weakness as the PMI missed forecasts and fell to 51.3, down from a previous 52.3, while manufacturing PMI dipped to 50.4 from 50.6, also missing expectations. These figures were flash estimates and tend to be more important than the final release.
The disappointing PMI data will likely be a concern to the European Central Bank as the Eurozone just continues to stagnate despite the Bank pumping money into the system through various stimulus measures. In order to ward off the risk of deflation in the Eurozone, the ECB has been buying covered bonds and offering long-term loans (LTROs). Recent reports suggested there is now a larger chance that it will begin buying sovereign bonds. Such stimulus measures have been pressuring the euro, which has declined to 2-year lows against the dollar. Today’s PMI data caused the euro to drop to a low of 1.2504, down 0.2% since the European session open.