April 06, 2013

Euro zone crisis: German economy slows to 'near-stagnation,' PMI survey shows

BRUSSELS, Belgium — Germany, the largest economy in the euro zone, slowed to “near-stagnation” in March, according to data released Thursday that showed the euro-area recession had deepened.


The Markit composite purchasing managers' index (PMI), which measures activity in the manufacturing and services sectors, dropped to 50.6 in Germany last month – just above the line that separates growth from contraction – from 53.3 in February.

Markit chief economist Chris Williamson said the “only source of bright light in an otherwise gloomy region has once again begun to fade.”

The composite PMI for the eurozone came in at 46.5 in March, compared with 47.9 in February, indicating further contraction in the manufacturing and services sectors. Williamson said the data showed the euro zone recession was “deepening once again.”

"While the first quarter contraction is likely to have been less steep than the 0.6 percent decline seen in the final quarter of last year, the concern is that the euro zone downturn shows no signs of ending," Williamson said.

The news was grim in other parts of the region. France recorded the “steepest downturn” and its biggest contraction in output in four years, while Italy and Spain again recorded “severe contractions.”

 There was a glimmer of hope in the Markit report, however. Business expectations about the year ahead is up despite concerns over Cyprus.

Optimism rose to a 21-month in Germany and was the highest level in almost a year in both Italy and Spain. In France however, firms were the most pessimistic in more than four years — another headache for President Francois Hollande.

Despite the grim economic data, the European Central Bank resisted pressure for a cut in interest rates at the monthly meeting of its governing council in Frankfurt on Thursday.

However, comments by ECB President Mario Draghi at a post-meeting press conference suggested the bank is preparing to ease rates if the recession shows no sign of abating. "Our monetary policy stance will remain accommodative for as long as needed," Draghi said.

"In the coming weeks, we will monitor very closely all incoming information on economic and monetary developments and assess any impact on the outlook for price stability."

The bank has to balance the potential economic boost from any rate cut with risks that it could fuel price rises. However, inflation is well below the ECB's 2 percent target.

Data released Wednesday showed inflation at 1.7 percent across the euro zone, the lowest level in almost three years.

Quizzed on Cyprus, Draghi rejected suggestions the deal to force holders of deposits above 100,000 euros to contribute to the bailout of Cypriot banks would not be "template" for other troubled euro-zone countries.

globalpost.com 

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