Euro area economy still in contraction mode
A composite gauge of the euro area manufacturing and services sectors shows that, during February, these contracted faster than economists had forecast. This took place against the backdrop of an economy that struggled to recover from the deepest recession in almost four years.
According to Markit Economics, the purchasing managers’ index (PMI) for both services and manufacturing in the 17 nations that use the euro declined to 47.3 from 48.6 in January versus expectations by a Bloomberg News survey for a reading of 49. A reading below 50 indicates contraction.
The report supports the view that the euro area economy is still in contraction mode and dents predictions that the region will come out of the recession in the first quarter of this year. Worryingly, the service industries of both Germany and France, the bloc’s powerhouses, performed worse than projected.
By contrast, investor confidence in Germany blew consensus forecasts, reaching the highest level in almost three years. According to Germany’s Centre for European Economic Research, also known as ZEW, the closely-watched investor confidence index jumped to 48.2 points in February from 31.5 the prior month.
Analysts surveyed by Dow Jones Newswires expected the index to reach 35.0. This was the third monthly increase in a row and above the 36 points expected by market analysts. This raises hopes that Europe’s largest economy is likely to rebound quickly from a fourth-quarter contraction.
Finally, the minutes of January’s meeting of the US Federal Reserve Open Market Committee (FOMC) signalled that the committee may consider slowing the rate of asset purchases as it fretted over whether record monetary easing would unleashing inflation or risks inflating asset-price bubbles.
At the December meeting, officials were “approximately evenly divided” between those in favour that purchases should end by the middle of 2013 and those in favour of a later date. Federal Reserve chairman Ben Bernanke has pledged to buy bonds until there is a “substantial” improvement in the labour market.
This article was compiled by Bank of Valletta plc for general information purposes only.