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Eurozone services and manufacturing shrink yet again


Europe’s manufacturing and service output has contracted for a seventh-straight month in August, increasing concerns that the Eurozone is heading for a deeper recession than previously thought.

The latest purchasing managers index compiled by London based Markit Economics measured the output of both sets of industries in all 17 member nations of the Eurozone. The figure for contraction was slightly better than expected rising to 46.6 from 46.5 in July. Any reading below 50 marks a contraction. Economists had predicted no change.

Rob Dobson senior economist at Markit said; “Taken together, the July and August readings would historically be consistent with GDP falling by around 0.5%-0.6% quarter-on-quarter, so it would take a substantial bounce in September to change this outlook.
The downturn is still led by the manufacturing sector, despite its pace of contraction easing a little this month. The service sector is also not out the woods, as business activity declined at an accelerated pace.”

The last bout of GDP figures out of the zone showed that it is inevitable that the Eurozone will enter recession in the third quarter, its second fall into recession in three years. Worryingly today’s data proves that the rot is spreading from the fringe nations into the core regions after Germany suffered its weakest monthly performance in three years. The main culprit was the worst-than-expected performance from the service sector with it falling to 48.3 from 50.1 in July. Manufacturing also slowed.

Tim Moore, senior economist at Markit said: “The German economy is sailing into greater headwinds as the third quarter progresses, with PMI readings slipping deeper into territory normally associated with GDP contractions. Outside of the 2008/09 downturn, the German composite index hasn’t been this low for this long since the time of the 2003 recession.”

“Hopes that German economic strength will aid recovery in the broader currency union were dealt a blow by its rate of economic contraction accelerating, and further signs that its export engine has slammed into reverse gear,” added Dobson.

Even more worrying for Europe is the fact that the world’s second biggest economy that of China, is showing ever increasing signs that it too is heading in the wrong direction. Weaker-than-expected PMI data from the country showed that it too was posting a contraction in its manufacturing and service sectors. Augusts PMI data shows that those services fell by 1.5 to 47.8. A statement was issued with the data in which Chief China economist at HSBC Qu Hongbin alluded to the impact of the international financial market and proposed measures to be taken; ‘Chinese producers are still struggling with strong global headwinds. To achieve the stated policy goal of stabilising growth and the jobs market, Beijing must step up policy easing to lift infrastructure investment in the coming months.’

As a result of the PMI data the Euro tumbled from its seven-week high against the US Dollar and posted losses against a number of currencies.

The Pound to Euro exchange rate is currently trading at 1.265

The Pound to US Dollar exchange rate is currently trading at 1.588

The Pound to Australian Dollar exchange rate is currently trading at 1.513

The Euro to US Dollar exchange rate is currently trading at 1.255

The Euro to Pound exchange rate is currently trading at 0.790

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