Eurozone decline eases, recession still looms

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Eurozone decline eases, recession still looms

Eurozone decline eases, recession still looms
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New business surveys show the pace of decline in the euro zone’s private sector unexpectedly easing in December.

Markit’s Purchasing Managers’ Index, which measures the activity of thousands of euro zone companies, was up for a second month though it remains well below the level that divides growth from contraction.

Economists still see a recession looming but think it may not be as deep as previously feared.

Survey compiler Markit said France and Germany were responsible for the improved headline figure, while debt-laden peripheral countries remained firmly in contraction territory.

“It’s an encouraging sign that (the index) didn’t fall any further. Quite what will happen henceforth remains highly uncertain,” said Chris Williamson, chief economist at Markit.

But overall the data point to a deep contraction. “The eurozone suffered its worst quarter for two and a half years in the final three months of 2011, with the PMI data suggesting that the region’s economy is likely to have contracted by 0.6 percent.”

Williamson pointed to steep falls in incoming new orders and very low levels of confidence about the year ahead in the services industry as reasons to expect more decline.

“Whether the rates of decline continue to moderate or accelerate is largely in the hands of the political leaders, and financial markets in their reaction to any changes in the sovereign debt situation,” he said.

Williamson warned that further weakness in these peripheral economies could yet knock the stronger core economies of France and Germany off track.

Taking a positive view, he said the surveys could be viewed as a sign that the euro zone economy is beginning to restructure itself although improvements in output so far haven’t been forthcoming.