Euro-area services and manufacturing output contracted at the fastest pace in almost three years in May, adding to signs the economy is suffering under the worsening sovereign-debt crisis.
A composite index based on a survey of purchasing managers in both industries dropped to 46 from 46.7 in April, London- based Markit Economics said today. While above an initial estimate of 45.9, the May reading is the lowest since June 2009. The indicator has remained below 50 -- indicating contraction -- for four months.
European companies are cutting back on hiring and spending as the intensifying fiscal crisis makes the economic outlook more uncertain. While the 17-nation euro area narrowly avoidedfalling into a recession in the first quarter, unemployment has reached the highest on record and economic confidence is at the lowest since 2009.
The data point “to markedly contracting activity and further weakness ahead,” said Howard Archer, chief European economist at IHS Global Insight in London. “It is odds-on that the euro zone is headed for renewed and appreciable contraction in the second quarter.”
The euro extended declines against the dollar after the data and traded at $1.2420 at 11:04 a.m. in Brussels, down 0.6 percent on the day and near a two-year low.
European Funds
Investors are growing more concerned about the debt crisis after inconclusive Greek elections raised the prospect of a breakup of the single currency and as Spain struggles to recapitalize its banking system. Spanish Budget Minister Cristobal Montorotoday called for European funds to be used to shore up the nation’s banks.
Finance ministers and central bank governors from the Group of Seven hold a call today to discuss the debt crisis. The G-7 discussions precede a summit of leaders from the Group of 20 on June 18-19 in Los Cabos, Mexico.
The fiscal crisis is clouding the outlook for economies and companies from Portugal to Germany. Bayerische Motoren Werke AG, the world’s biggest maker of luxury vehicles, predicted on June 1 that the German car market won’t grow in 2012 as the debt turmoil weighs on consumer spending.
“Companies report business activity to have been hit by heightened political and economic uncertainty, which has exacerbated already weak demand both in the euro area and further afield,” Chris Williamson, chief economist at Markit, said in today’s report. “Based on these numbers, it would not be surprising to see GDP for the region contract by 0.5 percent in the second quarter.”
Bloomberg
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