Euro Zone Private Sector Activity Contracted In May While The UK Reported Flat Q1 Growth, Adding To Mounting Concerns The Global Economy Is Slowing

Euro Symbol building 2
The euro currency sign is seen in front of the European Central Bank headquarters in Frankfurt. Reuters

Private sector euro zone activity declined again in May, according to the latest purchasing managers’ index report from Markit Economics, released Thursday. The news comes just hours after a similar report from HSBC shows that China’s manufacturing sector is contracting to its lowest point in seven months.

Both reports -- along with a third piece of economic news from the UK on Thursday that showed  flat growth in the first quarter -- suggest that global growth is slowing. The European Central Bank and the governments of the 17-nation euro zone currency bloc will likely face increased pressure to consider measures other than deficit-narrowing austerity measures (i.e., spending cuts and tax hikes) to stimulate growth. Earlier this month the European Central Bank lowered its key lending rate to 0.5 percent, a record low, in a bid to stimulate the business borrowing needed to fuel growth.

The Markit report said the purchasing managers’ index -- a closely tracked monthly survey that gauges activity in manufacturing and services -- increased to 47.7 from 46.9, better than expected by financial experts but still below 50, the number that divides contraction from growth.   

"The euro zone's second recession in five years looks set to drag on into a seventh successive quarter," Markit economist Chris Williamson told the Wall Street Journal.

Meanwhile, the British Office for National Statistics reported Thursday that GDP growth was a lackluster 0.3 percent in the first quarter of the year, led by a 0.6 percent rise in the services sector. Britain is not a member of the euro currency bloc, but it has been one of the stronger performers in the European Union. The news was welcome because there had been fears the country was falling into a third recession since the global economic downturn began in late 2008.

Still, 0.3 percent is essentially flat, and the news comes a day after the Washington-based International Monetary Fund urged the U.K. to continue austerity measures while finding ways to stimulate the economy.

"With employment and average earnings both dropping in the first quarter from their levels in the previous quarter, the foundations for a sustained recovery, even one driven by consumers, still looks pretty rickety," Martin Beck, UK economist at Capital Economics, said in a research note.

The U.S. has been pressuring European leaders to boost growth in their economies. The European Commission expects the euro zone to contract by 0.4 percent in 2013 after a 0.6 percent decline last year.

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