The Eurozone is facing its toughest period since it emerged from its last recession just three years ago. The latest dreary purchasing manager’s index figures show that Europe is heading for an inevitably deep recession.
The PMI composed by Markit fell to 45.8 this month from 46.1 in September beating economists’ expectations and marking it the lowest figure since 2009. The figure has now been below the 50 mark that separates growth from contraction for eight straight months and shows that the region has dug itself into a hole that it will struggle to get out of.
“It’s very disappointing, it’s a depressing scenario as things are getting worse,” said Chris Williamson, chief economist at data collator Markit.
“We are more downbeat than the official data. The PMIs are running at levels in the third quarter and start of the fourth quarter historically consistent with GDP falling at about 0.6 percent. The euro zone has slid further into decline at the start of the fourth quarter, while gross domestic product may decline only modestly in the third quarter; a steeper fall looks to be on the cards for the fourth.”
Williamson added that while the official data implied a more modest decline of 0.2-0.3 percent in the third quarter, the PMIs suggested the downturn would accelerate into the current quarter, a far gloomier outlook than the stagnation predicted.
The region’s economy has contracted by 0.2% in the second quarter and is predicted to have shrunk by 0.3% in the third. Two quarters of contraction in a row means that the area is heading for a technical recession.
Today’s news follows announcements from the European Central Bank and International Monetary Fund that they have both lowered their forecasts for the Eurozone’s economy over the past few months as governments cut spending in austerity drives. Such cuts have had the negative outcome of lessening demand for exports and consumer confidence. In a separate report, Germany, Europe’s engine has suffered from its biggest fall in business confidence for two- and-a- half years.
“Today’s report is an unpleasant surprise and reinforces concern that the economic downturn in the region may be deepening,” said Martin van Vliet, an economist at ING in Amsterdam. “Any return to positive growth next year will likely be slow and gradual and remains contingent on further progress toward resolving the debt crisis.”
As a result of the data the Euro has weakened for a second day against all except one of its 16 most traded peers.
“We’ve had some bad news and the euro has gone down,” said Jane Foley, a senior currency strategist at Rabobank. “Given the extent of the poor news that’s been around, I think it’s still amazing that the euro has been so resilient.” She added that the Euro could decline to the $1.28 region next month before making a recovery to $1.30 if the European Central Bank activates its bond-buying programme.
As of 10:40 am
The Pound to Euro exchange rate is currently trading at 1.2349
The Pound to US Dollar exchange rate is currently trading at 1.5976
The Pound to Australian Dollar exchange rate is currently trading at 1.5490
The Pound to New Zealand Dollar exchange rate is currently trading at 1.9639
The Pound to Canadian Dollar exchange rate is currently trading at 1.5830
The Pound to Japanese Yen exchange rate is currently trading at 127.4800
The Euro to US Dollar exchange rate is currently trading at 1.2937
The Euro to Pound exchange rate is currently trading at 0.8097
The Euro to Australian Dollar exchange rate is currently trading at 1.2544
The Euro to New Zealand Dollar exchange rate is currently trading at 1.5902
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