Divided euro zone economy declines further in February - PMIs

LONDON Tue Mar 5, 2013 10:04am GMT

A woman walks in the Andalusian capital of Seville February 28, 2013. REUTERS/Marcelo del Pozo

A woman walks in the Andalusian capital of Seville February 28, 2013.

Credit: Reuters/Marcelo del Pozo

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LONDON (Reuters) - France, Spain and Italy dragged the euro zone into a deeper downturn in February, according to business surveys on Tuesday that showed the chasm between these countries and prosperous Germany has widened yet again.

Markit's Eurozone Composite PMI, a broad gauge of activity at thousands of companies across the 17-nation bloc, fell to 47.9 in February from 48.6 in January.

Although that was a little better than a preliminary reading of 47.3, it was still well below the 50 mark dividing growth from contraction - as the index has been for just over a year.

The survey reflected how euro zone businesses were faring mostly before the inconclusive outcome of Italy's general election, which unsettled international financial markets.

While a better end to the month in Germany and France drove the final number higher, the gap between the euro zone's two largest economies has grown to its widest since the survey started in 1998, Markit said.

Spanish and Italian businesses endured another dire month.

"The outlook ... seems to largely depend on whether Germany can continue to expand and offset the weakness in France, Italy and Spain," said Chris Williamson, chief economist at survey compiler Markit.

"(That) seems a tall order, meaning hopes of a return to growth for the region by mid-2013 are now looking too optimistic."

The German composite PMI, released earlier on Tuesday, showed growth slowed last month from a 19-month high.

Williamson said the latest surveys were consistent with the euro zone economy shrinking around 0.2 percent this quarter, with only German strength saving the bloc from a downturn as bad as the 0.6 percent decline at the end of last year.

A poll of economists last month suggested the economy will merely stagnate this quarter, although that was conducted well before Italy's election.

That made it more likely the European Central Bank will have to help struggling countries such as Spain by buying their bonds, a Reuters poll showed last Thursday.

However, few expect any reduction in interest rates, already at a record low, to come this week.

The composite new business index, which often presages rises and falls in the next month's PMI, dropped to 46.7 from 48.0.

Services companies that comprise the bulk of the economy, ranging from restaurants to multinational banks, had another poor month in February.

The services PMI fell to 47.9 from 48.6 in January, although like the composite index, it was revised up from a preliminary reading of 47.3.

These companies cut jobs at a marginally slower pace in February, although it looks like it will be a long time before firms start hiring staff in earnest.

The euro zone's jobless rate hit an all-time high in January, according to figures from last Friday, as another 201,000 people fell out of work in the month.

(Editing by Hugh Lawson)

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