The Eurozone’s private sector has contracted for the seventh successive month. In August Markit’s Flash PMI Composite Output Index was broadly unchanged at 46.6 percent, from a final reading of 46.5 percent in July. Output declined in both the manufacturing and service sectors, with manufacturers again reporting by far the steeper pace of contraction whilst services business activity accelerated.
The decline in total activity was widespread across the currency union. Flash readings for France and Germany pointed to contractions, with the rate of decline easing in France but gathering pace in Germany. There was also a further marked decline in output outside of the big-two economies.
The latest decline in overall output mainly reflected a further marked drop in new orders, as incoming new business fell for the thirteenth consecutive month. However, the rate of contraction in August was less sharp than in July (which was the steepest for over three years). Rates of decline slowed at both manufacturers and service providers.
According to Rob Dobson, senior economist at Markit, the Flash PMI reinforces the prevailing view of the economy dropping back into recession during the third quarter of 2012. Taken together, the July and August readings would historically be consistent with GDP falling by around 0.5%-0.6% quarter-on-quarter. He added that “hopes that German economic strength will aid recovery in the broader currency union were dealt a blow … and further signs that its export engine has slammed into reverse gear”.
The Eurozone's debt-ravaged economy shrank in the second quarter, having flatlined in the first. The 17-nation currency bloc contracted by 0.2% on the quarter, according to data released on 14 August. Germany eked out growth of 0.3%, marginally beating forecasts. Economists said worse is likely to come and even Europe's largest economy is unlikely to defy gravity for long unless decisive action is taken to tackle the bloc's debt crisis.
Aline Schuiling, economist at the Dutch bank ABN AMRO, says that "What we see is a vicious circle of budget cuts, high interest rates in the periphery and sovereign debt rising. Policymakers are moving very slowly. There are limited prospects for growth in the eurozone. We expect another contraction in Q3."
Malta’s second-quarter GDP figures are keenly awaited to reveal whether our own recession has deepened or we have bucked the trend.