Eurozone purchasing managers' indices hit new low

Eurozone purchasing managers' indices hit new low
By Ralph Atkins in Frankfurt

Published: November 22 2008 02:00 | Last updated: November 22 2008 02:00

The recession in the eurozone has substantially worsened this month, with the private sector contracting at the fastest rate for at least a decade, according to a

survey yesterday.

Purchasing managers' indices for the 15-country region - seen as good indicators of likely trends in activity - have slumped to fresh lows in November, led by a sharp fall in manufacturing.

The latest gloomy news could increase pressure on eurozone governments to step up economic stimulus programmes, especially in Germany. It also strengthens the case for further cuts in European Central Bank interest rates next month.

However, the ECB's determination to maintain a steady hand means that a half-percentage-point cut is more likely than the larger reduction expected by many.

Jean-Claude Trichet, ECB president, told a Frankfurt banking conference yesterday that the latest economic data came as no surprise and that central bankers had "to inspire confidence".

The "composite" purchasing managers' index, covering services and manufacturing, fell from 43.6 in October to 39.7 this month - the lowest since the survey began in 1998. It is the sixth month running that the index has been below 50, which marks the border between expanding and contracting activity.

The indices pointed to a "shocking deterioration in the eurozone economy", said Chris Williamson, chief economist at Markit, which produces the survey.

The eurozone economy had already contracted by 0.2 per cent in both the second and third quarters of this year. But the latest survey was consistent with gross domestic product falling by 0.5 per cent in the final three months of the year. Economists believe that eurozone GDP could contract by as much as 1 per cent next year. Germany reported a particularly sharp contraction this month in its manufacturing sector - which has previously powered European growth - reflecting rapidly waning global demand for its industrial exports.

Peter Vanden Houte, chief eurozone economist at ING, said the latest data were worrying because the extensive measures taken by governments to shore up the banking system should have led to at least a modest recovery.

Instead "all the indicators give the feeling that activity fell off a cliff from October onwards".

*Poland could borrow up to €10bn ($12.5bn, £8.5bn) from the ECB to help boost financial market liquidity, in the latest extension of the bank's operations beyond the eurozone. The move, announced yesterday, follows the ECB's decision to extend €5bn in credit to Hungary. It highlights the ECB's willingness to help support financial stability across the European Union.

Copyright The Financial Times Limited 2008