This morning Markit Economics released a poor set of Eurozone PMI’s for April. The weakness in the Services sector has led to the belief that the 17-nation currency bloc is still experiencing contraction, and could post a third successive quarter of negative growth.
The Final Eurozone Composite Output Index fell to 46.7, down from 49.1, marking the steepest decline since October 2011.
The deep downturns in output were pronounced in both the manufacturing and the services industries. The acceleration in contraction came as weak trade between Eurozone nations hurt export orders and new business declined.
It was a case of all for one… and one for all in the currency bloc as output growth decelerated across the continent. Ireland and Germany managed to post minor expansions, but their figures slowed dramatically towards stagnation. The results for Italy and Spain were incredibly poor, with Italian output reaching a low level not seen since April 2009.
All-sector output growth (April)
Ireland – 51.0 – 3-month low
Germany – 50.5 – 5-month low
France – 45.9 – 6-month low
Italy – 42.7 – 36-month low
Spain – 42.0 – 5-month high
The downbeat data reflects a continuation of the weakness seen in the Eurozone before Christmas, and throws into doubt the effectiveness of the ECB’s cheap loan scheme. Chris Williamson of Markit said:
“Business and consumer confidence appears to have deteriorated markedly across the region since the uplift seen at the start of the year, suggesting that stimulus measures implemented by the European Central Bank have not had a lasting impact on the real economy.”
Williamson also commented on how the Euro-wide weak figures show that little separates the core and the peripheral nation states in terms of growth: “Little can be said of any ‘core’ strength in the region. Growth has practically grown to a halt even in Germany.” It appears that severe blanket austerity across the Eurozone has taken its toll on the currency bloc’s growth prospects, making it increasingly unlikely that the sovereign debt crisis will come to an end anytime soon.
Yesterday ECB President Mario Draghi announced that the benchmark interest rate would remain at its record low 1.0% level. He said that: “There is wide unanimity about the fact that an exit strategy is premature.” But he did acknowledge that a focus on bringing the currency bloc back into growth was needed: “We have to put growth back at the centre of the agenda.”
The Eurozone’s anaemic economic outlook has given rise to strong Sterling surges in the currency exchange market. The Sterling to Euro exchange rate currently stands at an exceptional 22-month high of 1.2317 (10:49 GMT 4th May 2012). The weak Eurozone PMI results gave Sterling a 10-pip boost and allowed the Pound’s status as a safe-haven currency to continue.