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May 26, 2017

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Eurozone woes deepen; China, United States see partial improvement

NEW YORK -- Eurozone businesses suffered another dismal month in October, suggesting the economy may be headed for a deeper recession than expected, but conditions improved slightly for U.S. and Chinese manufacturers.

In Europe, a slump that began with a debt crisis in Greece had spread across the 17-country eurozone as factory output in Germany, the region's biggest economy and top exporter, plunged.

The malaise indicated the downturn could accelerate over the final months of the year, deepening a eurozone recession.

"It's very disappointing. It's a depressing scenario, as things are getting worse," said Chris Williamson, chief economist at financial data firm Markit.

Markit's Composite Purchasing Managers' Index (PMI) for the eurozone, which polls some 5,000 businesses, fell to 45.8 this month, its lowest reading since June 2009. It has been below the 50 mark that separates growth from contraction since February.

Things were a bit brighter in North America and Asia.

A survey showed China, the world's second largest economy, was recovering from its weakest period of growth in three years. While manufacturing contracted for a 12th straight month, output hit a three-year high and order books were their most robust since April.

The outlook was a bit more tempered in the United States. Its manufacturing sector managed to grow this month with Markit's manufacturing PMI index edging up to 51.3, but weak overseas demand and uncertainty surrounding U.S. elections and fiscal policy suggested its recent difficulties were not over.

"Europe is still struggling a lot and it's the United States' trading partner. There are some concerns about the fiscal cliff as well as the U.S. Presidential election," said Robert Van Batenburg, head of global research at Louis Capital Markets in New York. "There is some measure of hope out there, but I'm skeptical about what will happen between now and March."

Though U.S. growth has been sluggish in recent months and is not expected to be much above 2 percent for the year, the economy has been more resilient than that of Europe or Japan.

Major central banks are already making maximum efforts to boost growth, and economists fear there is not much more that can be done. On Wednesday, European Central Bank President Mario Draghi defended a bond-buying program aimed at easing pressure on indebted countries while the U.S. Federal Reserve was expected to reiterate its commitment to keep buying bonds and holding interest rates at zero.

The eurozone economy contracted 0.2 percent in the second quarter and is predicted to have shrunk 0.3 percent in the third, meeting the technical definition of recession.

"We are more downbeat than the official data. The PMIs are running at levels in the third quarter and start of the fourth quarter historically consistent with GDP falling at about 0.6 percent," he said.

A recent Reuters poll predicted the eurozone economy may not recover until 2014.

Plunges in German and French manufacturing "reinforce concern that the economic downturn in the region may be deepening and widening," said Martin van Vliet, senior economist at ING.

In a separate report, Germany's Ifo institute showed business sentiment in the country dropped sharply to its lowest in more than 2-1/2 years, the sixth consecutive monthly fall.

Markit's measure of services business expectations sank to its lowest reading since February 2009, at the nadir of the last recession and when world stock markets were tumbling.

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