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Business demand still isn’t enough to yank the euro zone out of its recession

May 23, 2013
Obsession
Euro Crunch
May 23, 2013

Earlier today, European Central Bank commissioner Ewald Nowotny warned that the euro zone recession in 2013 could be even worse than the -0.1% growth expected. A slew of preliminary data from this month’s Purchasing Managers Index data, which measures business activity, suggest Nowotny’s right.

That hints that, as we expected, the interest rate cut from the ECB isn’t helping—something that Chris Williamson, chief economist at Markit, which publishes the PMI data, calls out as well. “The ECB’s quarter-point cut in interest rates seems to have done little to inspire confidence that the economy will start to pick up again,” wrote Williamson (pdf). “[R]ecovery remains a long way off still and…policymakers need to do more to stem the downturn and revive growth.” Here’s a roundup of the charts illustrating that gloomy outlook:

Though the flash Eurozone PMI for May hit a three-month high, output is still contracting such that the regional recession will drag into Q2 2013 (pdf):

Screen Shot 2013-05-23 at 6.59.40 AM

The contraction comes as new business orders nosedived and manufacturers slashed prices by the most since January 2010. Weighing the core against the periphery, Germany is stagnating, while France continues to slide:

Screen Shot 2013-05-23 at 7.27.58 AM

In Germany, headcount shrunk for the first time in since January:

Screen Shot 2013-05-23 at 7.31.07 AM

In general, though, Germany’s May business activity looked weak but stable (pdf), and a delayed pickup in construction activity should boost overall Q2 outlook:

Screen Shot 2013-05-23 at 6.59.52 AM

France’s PMI was steady as well—steadily awful, that is. This hints that “another drop in GDP could well be on the cards” in Q2, said Markit’s Jack Kennedy (pdf):

Screen Shot 2013-05-23 at 7.00.03 AM

French private-sector payroll numbers continues to deteriorate, particularly in manufacturing, which typically employs around 13% of workers:

Screen Shot 2013-05-23 at 7.37.43 AM

Meanwhile, on the heels of a bigger-than-expected contraction in Q1 GDP, Italy’s March retail sales tumbled 0.3% on the previous month, much more than the 0.1% drop analysts predicted:

Screen Shot 2013-05-23 at 7.51.15 AM

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