Eurozone recovery losing momentum, index reveals

EUROPEAN services and manufacturing growth held steady in August at the slowest pace in almost two years, adding to signs the euro-region recovery is losing momentum as the sovereign debt crisis persists.

A composite index based on a survey of eurozone purchasing managers in both industries held at 51.1, the same as July’s reading and the lowest since September 2009, London-based Markit Economics said. Economists forecast a drop to 50, the median of 15 estimates in a Bloomberg News survey showed. A reading above 50 indicates growth.

“It’s some light amidst all the gloom, but we are not out of the woods yet,” said Martin van Vliet, senior economist at ING Bank Group.

“It reduces the fear of an imminent recession, but growth will flat-line for the rest of the year.”

Europe’s economy is struggling to gather strength as governments from Italy to Spain step up budget cuts to fight the debt crisis. Pledges of €365 billion in official loans to Greece, Portugal and Ireland, and €110.5bn of bond purchases by the ECB failed to fix the finances of those countries or prevent speculative attacks on Spain and Italy.

Eurozone gross domestic product expanded 0.2% in the second quarter after a 0.8% gain in the previous period, the worst performance since late 2009. In Germany, Europe’s largest economy, growth almost stalled.

“The eurozone economy grew only marginally again in August, suggesting that recent months have seen the weakest expansion for two years,” Chris Williamson, Markit’s chief economist, said in yesterday’s report.

“A number of factors have hit growth, including a downturn in global demand, which caused exports of goods to fall at the fastest rate for over two years, and growing concerns about the economic outlook and the euro area’s financial crisis, which caused business confidence to plunge. Most notable was a record fall in business confidence in the German service sector.”

The euro-area servicesindicator slipped to 51.5 this month from 51.6 in July, Markit said.

The manufacturing gauge dropped to 49.7, indicating a contraction.

In Germany, the manufacturing index held steady at 52 in August, while services dipped to 50.4, a 25-month low, Markit said.

The services gauge is “not as bad as expected, showing that in the core economies, at least, domestic demand is holding up somewhat,” Mr van Vliet said.

“But at the same time, it may merely mean that all the bad news simply hasn’t fed through yet and we’ll see a decline in the next few months.”

New business in the euro area fell for the first time in two years, Markit said.

Services reported the weakest growth of new orders since September 2009, while manufacturers said new orders had fallen for a third month.

“With forward-looking indicators such as business confidence and new orders falling further, it is likely that the survey data will continue to turn down in September,” Markit’s Williamson said.

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