Euro zone economy's decline deepens in October

LONDON Tue Nov 6, 2012 9:17am GMT

An employee of German car manufacturer Mercedes Benz works on a Mercedes B-class car at the Mercedes plant in Rastatt July 16, 2012. REUTERS/Alex Domanski

An employee of German car manufacturer Mercedes Benz works on a Mercedes B-class car at the Mercedes plant in Rastatt July 16, 2012.

Credit: Reuters/Alex Domanski

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LONDON (Reuters) - The euro zone economy's decline steepened going into the fourth quarter, as companies across the region endured their toughest month in October since June 2009, business surveys showed on Tuesday.

Markit's Eurozone Composite PMI fell in October to 45.7 from 46.1 in September, down slightly from a preliminary reading of 45.8 two weeks ago and marking its ninth consecutive month below the 50 mark dividing growth from contraction.

The weakness was spread across the euro zone's major economies, with business activity in the largest market, Germany, also shrivelling at a quicker pace last month.

Survey compiler Markit said the latest PMI was consistent with the euro zone economy shrinking at a quarterly rate of around 0.5 percent.

If the PMIs fail to improve for November and December, the euro zone economy could easily face a hefty contraction in the fourth quarter rather than the stagnation projected by a median of economists two weeks ago.

The survey will do little to alter the view of a majority of economists that the European Central Bank will trim interest rates to a new record low of 0.5 percent, although probably early next year rather than this Thursday.

"Sentiment is still being hit hard as companies worry about the dual impact of weak domestic demand and a slowing global economy," said Rob Dobson, senior economist at Markit.

"Signs that the contraction in Germany gathered pace are particularly disappointing, given the important role a strong performing Germany could play in stimulating growth elsewhere in the currency zone."

The PMI pointed to little chance of a turnaround coming soon. Surveys from Asia and the United States released on Monday suggested the euro zone will remain the global economy's principal laggard going into 2013.

The composite PMI's new business index was revised up to 44.7 from 44.3, a hefty rise on September's 43.8, but still well below the growth threshold of 50.

The October services PMI, which covers companies as diverse as banks and restaurants, was revised down to 46.0 from the 46.2 preliminary reading, compared with September's 46.1.

That means the services PMI now stands at its lowest level since July 2009.

The survey's employment index rose in October to 47.4 from 45.9, although staying well below the 50 mark for a 10th month, meaning firms are still cutting jobs.

"Ireland was the only real brighter spot in October, with growth improving as it continues to make up lost ground," said Dobson, after its services PMI hit 56.1 in October, a sharp jump from 53.9 the previous month.

- Detailed PMI data is available only under licence from Markit and customers need to apply to Markit for a licence.To subscribe to the full data, click on the link below: here For further information, please phone Markit on +44 20 7260 2454 or email economics@markit.com

(Editing by Hugh Lawson)

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