FRANKFURT — Hopes that the euro zone could be emerging from years of torpor suffered another setback on Thursday when an indicator of economic activity in the region slipped unexpectedly and suggested that France could be sliding back into recession.
The indicator, a survey of purchasing managers published by the research firm Markit, fell to 51.5 in November from 51.9 in October, according to preliminary data, as the decline in France offset further improvement in Germany.
Economists had expected the composite index for the euro zone, which tracks both manufacturing and service sectors, to rise to 52, according to Barclays. A reading above 50 is considered a sign that the euro zone economy is growing.
But the index for France fell to 48.5 in November from 50.5 in October, the latest sign of shrinkage in the French economy, the second-largest in the euro zone behind Germany’s. It would be difficult for the euro zone to grow with any vigor if France were in recession.
Over all, the survey data suggested that, even though the euro zone as a whole pulled out of recession in the second quarter of this year, the recovery lacks momentum and is vulnerable to shocks, such as a sag in demand from China and other emerging markets.
“Any improvements were largely confined to Germany,” said Chris Williamson, chief economist at Markit. “France, on the other hand, showed further signs of being the ‘sick man of Europe.’ ”
The improvement in Germany, with the index rising to a 10-month high of 54.3 from 53.2 in October, was led by service providers, though manufacturers also reported that business was better.
Services tend to be driven by domestic demand, a possible sign that Germany is becoming less dependent on exports for growth.
But the unexpectedly strong performance of Germany had a downside, because it highlighted the growing gap between competitive countries concentrated in Northern Europe and a group of sclerotic countries exemplified by Italy and now, it seems, France.
Germany’s growing wealth during the misery that prevails in much of the euro zone is likely to intensify calls for it to invest more of its enormous trade surplus at home, to stimulate German demand for imports from the rest of the euro zone.
Germany, however, argues that it imports as much from euro zone countries as it exports to them, and that its huge trade surplus comes from exports to countries outside Europe.
France’s poor performance will add to pressure on President François Hollande to confront the country’s structural weaknesses, like labor regulations that are widely seen as an impediment to hiring and firing.
“Make no mistake about it, France has been knee-deep in a crisis for the past few years, and one which has been exacerbated by President Hollande’s tax-driven fiscal consolidation program and his extremely weak leadership,” Nicholas Spiro, managing director of Spiro Sovereign Strategy, said in a note to clients.
“Indeed, the ever bleaker economic data in France is now the most conspicuous example of the severity and protracted nature of the downturn in the euro zone.” The euro zone emerged from recession in the second quarter of this year, but growth has since been barely perceptible.
On Tuesday, the Organization for Economic Cooperation and Development forecast that the euro zone economy would expand a modest 1 percent next year, slightly less than the organization’s economists forecast six months earlier.
This month, the European Central Bank cut its benchmark interest rate to a record low of a quarter of 1 percent in response to slow growth and a rate of inflation that some economists consider perilously close to deflation, a ruinous downward spiral in prices.
In a speech in Berlin on Thursday, Mario Draghi, president of the European Central Bank, defended Germany against criticism that its economic success came at the expense of other euro zone countries.
“The answer to the problems of the euro area is not to weaken its stronger economies,” Mr. Draghi said.
“Rather, it is to strengthen its weaker economies.” But Mr. Draghi also appeared to side with those who say Germany should focus less on cutting debt and put more emphasis on repairing aging bridges, roads and schools. German investment is lower than it was in 2007, Mr. Draghi said.
“Generating higher investment is ultimately the job of the private sector,” Mr. Draghi said. “But public authorities have to create the conditions that facilitate and encourage this process.”
nytimes.com
The indicator, a survey of purchasing managers published by the research firm Markit, fell to 51.5 in November from 51.9 in October, according to preliminary data, as the decline in France offset further improvement in Germany.
Economists had expected the composite index for the euro zone, which tracks both manufacturing and service sectors, to rise to 52, according to Barclays. A reading above 50 is considered a sign that the euro zone economy is growing.
But the index for France fell to 48.5 in November from 50.5 in October, the latest sign of shrinkage in the French economy, the second-largest in the euro zone behind Germany’s. It would be difficult for the euro zone to grow with any vigor if France were in recession.
Over all, the survey data suggested that, even though the euro zone as a whole pulled out of recession in the second quarter of this year, the recovery lacks momentum and is vulnerable to shocks, such as a sag in demand from China and other emerging markets.
“Any improvements were largely confined to Germany,” said Chris Williamson, chief economist at Markit. “France, on the other hand, showed further signs of being the ‘sick man of Europe.’ ”
The improvement in Germany, with the index rising to a 10-month high of 54.3 from 53.2 in October, was led by service providers, though manufacturers also reported that business was better.
Services tend to be driven by domestic demand, a possible sign that Germany is becoming less dependent on exports for growth.
But the unexpectedly strong performance of Germany had a downside, because it highlighted the growing gap between competitive countries concentrated in Northern Europe and a group of sclerotic countries exemplified by Italy and now, it seems, France.
Germany’s growing wealth during the misery that prevails in much of the euro zone is likely to intensify calls for it to invest more of its enormous trade surplus at home, to stimulate German demand for imports from the rest of the euro zone.
Germany, however, argues that it imports as much from euro zone countries as it exports to them, and that its huge trade surplus comes from exports to countries outside Europe.
France’s poor performance will add to pressure on President François Hollande to confront the country’s structural weaknesses, like labor regulations that are widely seen as an impediment to hiring and firing.
“Make no mistake about it, France has been knee-deep in a crisis for the past few years, and one which has been exacerbated by President Hollande’s tax-driven fiscal consolidation program and his extremely weak leadership,” Nicholas Spiro, managing director of Spiro Sovereign Strategy, said in a note to clients.
“Indeed, the ever bleaker economic data in France is now the most conspicuous example of the severity and protracted nature of the downturn in the euro zone.” The euro zone emerged from recession in the second quarter of this year, but growth has since been barely perceptible.
On Tuesday, the Organization for Economic Cooperation and Development forecast that the euro zone economy would expand a modest 1 percent next year, slightly less than the organization’s economists forecast six months earlier.
This month, the European Central Bank cut its benchmark interest rate to a record low of a quarter of 1 percent in response to slow growth and a rate of inflation that some economists consider perilously close to deflation, a ruinous downward spiral in prices.
In a speech in Berlin on Thursday, Mario Draghi, president of the European Central Bank, defended Germany against criticism that its economic success came at the expense of other euro zone countries.
“The answer to the problems of the euro area is not to weaken its stronger economies,” Mr. Draghi said.
“Rather, it is to strengthen its weaker economies.” But Mr. Draghi also appeared to side with those who say Germany should focus less on cutting debt and put more emphasis on repairing aging bridges, roads and schools. German investment is lower than it was in 2007, Mr. Draghi said.
“Generating higher investment is ultimately the job of the private sector,” Mr. Draghi said. “But public authorities have to create the conditions that facilitate and encourage this process.”
nytimes.com
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