Euro Zone Data Offer Further Signs Of Recession

 
on April 04 2012 11:48 AM

New data on business activity and retail sales in the euro zone reinforce earlier evidence that the single-currency area is in recession, even as the European Central Bank on Wednesday left its main interest rate unchanged at an all-time low of 1 percent for the fourth consecutive month.

Data company Markit Economics Ltd. said its composite purchasing managers' index for the euro zone fell to 49.1 in March from 49.3 in February. But the month-to-month index, which measures business activity, did show some improvement: The average reading over the first three months of this year was 49.6, up from 47.2 for the fourth quarter of 2011.

Chris Williamson, chief economist for Markit, said the PMI data indicate that the region has slipped back into a technical recession .

With the exception of a marginal expansion seen in January, the economy has been in continual decline since last September, he said.

Williamson noted that the purchasing managers' survey showed a slight easing in the rate at which the euro zone's services sector has been declining, offering hope that the mild recession may also be brief. 

Readings in the Markit index of below 50 indicate month-to-month shrinkage, so according to Wednesday's data the euro zone is in a technical recession -- defined as two straight quarters of economic contraction.

Also Wednesday, European Union statistics agency Eurostat said February's volume of euro zone retail sales declined by 0.1 percent from January and by 2.1 percent compared with February 2011. (January's result was a 1.1 percent increase, revised from an earlier forecast of 0.3 percent, from December.)

The decline in February was largely due to falling retail sales in Germany, the biggest of the euro zone's 17 economies. It means sales have fallen in all but two of the previous seven months. 

Continued softness in retail sales is seen as the result of government austerity measures and rising unemployment in the aftermath of debt problems among several euro zone members.

In March, the Eurocoin economic-activity gauge compiled by the London-based Centre for Economic Policy Research and Italy's central bank, showed that the euro zone economy shrank for two consecutive quarters, indicating a recession.

Many aren't surprised by the gloomy economic data. The European Commission, the EU's executive body, has already forecast a mild recession for the currency area this year, citing the global economic slowdown, the region's sovereign-debt crisis and individual governments' austerity measures.

On the policy front, ECB President Mario Draghi said Wednesday that downside risks to growth in the euro zone remain and that it's premature to disccuss how or when the central bank will start to unwind the steps it has taken to fight the debt crisis.

Despite the risks, broad stabilization of the region's economy is expected at a low level, Draghi told a news conference in Frankfurt after the ECB decided to leave its main interest rate at 1 percent. The move was seen as balancing economic weakness with concerns over high inflation and rising commodity prices.

Draghi said, however, that the euro zone's economy will likely recover gradually in the course of [this] year.

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