Europe edges back to recession

The eurozone was poised to enter a technical recession as private sector business activity declined for the seventh month while Ireland was the only bright spot.

The Department of Finance revised down its underlying budget deficit for 2011 to 9% of GDP, well below the 10.6% EU/IMF target.

Ireland posted a strong monthly rise of 1.7% in retail sales in July while they fell across the eurozone generally. The Purchasing Managers Index (PMI) was at a two month high for Ireland at 51.4, compared to 46.3 for the eurozone bringing it into negative territory of below 50.

The eurozone’s powerhouse of Germany showed signs of being affected by the lack of growth in the rest of the region, as retail sales fell by 0.9% in July from June’s level. Growth in the 17 euro countries contracted by 0.2% in the second quarter of the year having been flat for the first three months, yet another indicator of pending recession.

Senior economist Rob Dobson at Market, that compiles the PMI, said the eurozone economy was on course to fall back into technical recession in the third quarter.

“Sharp declines in new orders at manufacturers and service providers, plus further job losses, means that there is little prospect of a sustained improvement in economic conditions in the near-term,” he said, but noted that there was some modest improvement in Ireland, Italy and Spain.

However, there were increasing signs of weakness in Germany with exports and domestic demand falling. “If the core nations falter, the outlook for the periphery will surely worsen,” he said.