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04May12


Misery builds for the euro zone


The euro zone economy worsened markedly in April, according to business surveys that clashed with the prospect of a gradual recovery augured by European Central Bank President Mario Draghi this week.

Friday's purchasing managers indexes (PMIs), primarily covering services, suggested a recession across Europe's currency union could now extend to mid-year and be deeper than previously thought.

They did, however, indicate better progress among Chinese companies.

Jobs data from the United States due at 1230 GMT could further underline the euro zone's status as the global economy's slowpoke, with analysts expecting a modest improvement in the number of workers added to U.S. payrolls added in April.

Following the European Central Bank's policy meeting on Thursday, President Mario Draghi spoke of a gradual economic recovery taking place in the euro zone during the course of the year, although he did speak about risks.

The PMIs, however, have a much better record of tracking economic growth than the forecasts of ECB policymakers.

"If you look at Spain, then using the word recovery is an insult. Aggregated all together, it looks to us like (the euro zone economy) is contracting," said Danny Gabay, director at Fathom Financial Consulting in London.

"We've seen unemployment rise in a number of countries and in the so-called bailed out countries, you're seeing deflation and unemployment - some quite seriously negative numbers."

Markit's Eurozone Services PMI, which gauges business activity over a month, came in at 46.9 in April, sharply lower than 49.2 in March. Anything below 50 signifies contraction.

That was also full point lower than the preliminary reading of 47.9 reported two weeks ago, which itself was far weaker than any economist polled by Reuters had expected.

The downward revision to the services PMI was the steepest since October 2008, the month after U.S. investment bank Lehman Brothers collapsed, triggering a global sell-off in stock markets and ushered in the Great Recession.

PMI compiler Markit said the latest surveys were consistent with a 0.5 percent quarterly economic contraction. Economists polled by Reuters last month thought the euro economy will shrink 0.1 percent in the present quarter. <ECILT/EU>

"Little can be said to remain of any 'core' of strength in the region," said Chris Williamson, chief economist at Markit.

"Growth has practically ground to a halt even in Germany, and France has joined Italy and Spain in seeing a strong rate of economic decline."

With unemployment already at a 15-year high in the euro zone, the surveys suggested there will be no let-up in the number of job losses soon.

In Spain, where nearly one in four people are out of work - the highest jobless rate in the European Union - protesters took to the streets against the ECB's meeting, this month held in Barcelona instead of Frankfurt.

The story is very different in Asia. China's economy, which got off to a slow start to the year, is starting to show signs of growing faster.

The HSBC China Services Purchasing Managers Index (PMI) rose to 54.1 in April from 53.3 in March, its strongest reading since October 2011. That followed a small rise in HSBC's manufacturing PMI released earlier this week.

China's domestic economy has been struggling to compensate for lackluster export orders for goods produced by the country's vast factory sector. Demand from the United States and the European Union has still not recovered to where it was prior to the 2008-09 global financial crisis.

Economic data from the U.S. has been mixed of late. The non-manufacturing ISM survey, comparable to the PMIs in Europe and China, was worse than expected in April.

Payrolls data later on Friday are expected to show the American economy added around 170,000 non-farm jobs in April, up from 120,000 in March, although most data of late has surprised on the downside.

[Source: By Andy Bruce, Reuters, London, 04May12]

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