LONDON--An indicator that has correctly recorded contractions in the euro zone suggests the currency area's economy shrank for a seventh straight quarter in the three months to the end of June, extending its longest postwar slump.
Official figures for second-quarter economic activity won't be released until Aug. 14, but the monthly Eurocoin measure of euro-zone output released Friday signaled a contraction for June, having earlier signaled declines in activity in April and May.
The measure, which is compiled by the London-based Center for Economic Policy Research and the Bank of Italy, also showed a drop in gross domestic product in each of the three months of the first quarter, an indication borne out later when official data showed the euro-zone economy shrank by 0.2%, the equivalent to an annualized decline of 0.9%.
Following its recovery from a deep contraction in the wake of the 2008 financial crisis, the euro zone's economy first contracted again in the final three months of 2011 and continued to shrink in each quarter of 2012.
The index is one of the earliest measures of growth in the currency area and is consistent with surveys of purchasing managers in manufacturing and services, which also have pointed to a contraction in June.
Many recent economic data releases and surveys have suggested the contraction is easing and may end soon.
Figures released Friday showed German retail sales rose in May following three straight months of decline, while French consumer spending also increased.
However, the Eurocoin points in the opposite direction. The CEPR and the Bank of Italy said the Eurocoin indicator fell to -0.18% from -0.15% in May, its second straight month of decline to reach its lowest level since February.
Also Friday, a survey from industry group VDMA showed orders for Germany's important plant and machinery industry fell in May as companies held back large investment amid an uncertain global outlook.
While not a surprise given that many of its members are cutting government spending and raising taxes to trim budget deficits, the continued contraction in the euro zone would be unwelcome to policy makers, since it likely would be accompanied by a further rise in unemployment.
Declining output also makes it more difficult for governments to meet deficit-reduction targets because it weakens tax revenue and makes it more difficult for policy makers in countries that aren't at the forefront of the crisis to persuade voters to back further bailouts of weaker members.
If confirmed by official data, the second-quarter contraction is unlikely to spur the European Central Bank into fresh action.
It believes that returning the currency area to growth is largely the job of national governments and believes that there is little it can do to stimulate demand, having already cut its benchmark interest rate to a record low of 0.5%.
Unlike the U.S. Federal Reserve, the Bank of Japan and the Bank of England, the ECB hasn't embarked on a program of quantitative easing, using freshly created money to buy assets such as government bonds or mortgage-backed securities.
The ECB on Friday described as "inaccurate" a report in a German newspaper that the central bank was considering a new bond purchase program, where it would purchase debt from all 17 euro member states.
"The thinking of the ECB in a 360-degree perspective relates to the issue of supporting, within our mandate, the credit supply to the real economy, especially to small-to-medium businesses, and to nothing else. Stories that claim otherwise are not correct," an ECB spokesman said in a statement to The Wall Street Journal.
A pickup in the inflation rate also stands in the way of fresh ECB action to stimulate growth. Figures released Friday showed the annual rate of inflation rose in June in both Germany and Italy, while figures released earlier this week showed similar increases in Spain and Belgium.
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Official figures for second-quarter economic activity won't be released until Aug. 14, but the monthly Eurocoin measure of euro-zone output released Friday signaled a contraction for June, having earlier signaled declines in activity in April and May.
The measure, which is compiled by the London-based Center for Economic Policy Research and the Bank of Italy, also showed a drop in gross domestic product in each of the three months of the first quarter, an indication borne out later when official data showed the euro-zone economy shrank by 0.2%, the equivalent to an annualized decline of 0.9%.
Following its recovery from a deep contraction in the wake of the 2008 financial crisis, the euro zone's economy first contracted again in the final three months of 2011 and continued to shrink in each quarter of 2012.
The index is one of the earliest measures of growth in the currency area and is consistent with surveys of purchasing managers in manufacturing and services, which also have pointed to a contraction in June.
Many recent economic data releases and surveys have suggested the contraction is easing and may end soon.
Figures released Friday showed German retail sales rose in May following three straight months of decline, while French consumer spending also increased.
However, the Eurocoin points in the opposite direction. The CEPR and the Bank of Italy said the Eurocoin indicator fell to -0.18% from -0.15% in May, its second straight month of decline to reach its lowest level since February.
Also Friday, a survey from industry group VDMA showed orders for Germany's important plant and machinery industry fell in May as companies held back large investment amid an uncertain global outlook.
While not a surprise given that many of its members are cutting government spending and raising taxes to trim budget deficits, the continued contraction in the euro zone would be unwelcome to policy makers, since it likely would be accompanied by a further rise in unemployment.
Declining output also makes it more difficult for governments to meet deficit-reduction targets because it weakens tax revenue and makes it more difficult for policy makers in countries that aren't at the forefront of the crisis to persuade voters to back further bailouts of weaker members.
If confirmed by official data, the second-quarter contraction is unlikely to spur the European Central Bank into fresh action.
It believes that returning the currency area to growth is largely the job of national governments and believes that there is little it can do to stimulate demand, having already cut its benchmark interest rate to a record low of 0.5%.
Unlike the U.S. Federal Reserve, the Bank of Japan and the Bank of England, the ECB hasn't embarked on a program of quantitative easing, using freshly created money to buy assets such as government bonds or mortgage-backed securities.
The ECB on Friday described as "inaccurate" a report in a German newspaper that the central bank was considering a new bond purchase program, where it would purchase debt from all 17 euro member states.
"The thinking of the ECB in a 360-degree perspective relates to the issue of supporting, within our mandate, the credit supply to the real economy, especially to small-to-medium businesses, and to nothing else. Stories that claim otherwise are not correct," an ECB spokesman said in a statement to The Wall Street Journal.
A pickup in the inflation rate also stands in the way of fresh ECB action to stimulate growth. Figures released Friday showed the annual rate of inflation rose in June in both Germany and Italy, while figures released earlier this week showed similar increases in Spain and Belgium.
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