World Economy
0

Eurozone, a Step Away From Recession

Eurozone, a Step Away From RecessionEurozone, a Step Away From Recession

A new survey of manufacturing and service companies across the eurozone shows the area is now a step away from recession, as key economies France and Germany remain weak.

The speed of growth in the eurozone slowed down in November, according to the preliminary Markit Purchasing Managers' Index (PMI) released Thursday, RT reported.

The eurozone's composite PMI came in at 51.4, the lowest in 16 months. Analysts had expected the figure to come in at 52.3 overall, an improvement from October's 52.1. The figure is still above the neutral 50 mark, anything below that signals recession.

France and Germany remain the main drags on the European economy.

France Needs Time

France remained a "key area of weakness," suffering a drop in business activity for a seventh consecutive month and a further month of job cuts. The country’s PMI index has remained below 50.0 since May.

As he outlined the fiscal landscape in France, finance minister Michel Sapin’s tone was markedly more subdued than that of President Francois Hollande in his past optimistic statements.

Hollande is haunted by his failed promise to “reverse the curve of unemployment” by the end of last year, and Bastille Day speeches in 2013 and 2014 in which he announced that “the recovery is here”.

“The recovery is not here,” Sapin said clearly at a breakfast with the Anglo-American Press Association at the finance ministry in Bercy.

There have been three distinct crises since 2008: the initial financial and banking crisis; the public debt crisis in the eurozone: and “today, in the third period, which is extremely delicate, weak growth, weak inflation and high unemployment, which risk lasting for a long time”, Sapin said.

The European Commission is to deliver its verdict on France’s 2015 budget on Monday. Brussels wants Paris to cut more than the €50 billion ($62.4b) promised by 2017. France has unilaterally postponed compliance with the 3 percent budget deficit ceiling until 2017, arguing mitigating circumstances.

“One cannot reduce debt with very weak growth and weak inflation,” Sapin argued, admitting France has carried out few structural reforms. “Over the last 10 years, Germany did structural reforms, while France said she was going to do them.”

German PMI Drops

Germany's manufacturing PMI dropped to 50.0 in November, down from 51.4 in October and the weakest since July 2013.

As German factory output returns to a standstill, the powerhouse economy looks unlikely to provide much steam to the overall euro area before the year is up.

Jennifer McKeown, senior European economist at Capital Economics, described the data as "a serious blow to hopes that the recovery would resume towards the end of the year".

"The index has been probably the most reliable indicator of eurozone GDP growth in the past and it clearly would not take much to leave this index back in recession territory", McKeown said.

 

Financialtribune.com