France, Spain and Italy dragged the eurozone into a deeper downturn in February, according to business surveys that showed the chasm between these countries and prosperous Germany widening yet again.
While British services companies had a slightly better month than expected, yesterday’s purchasing managers’ indexes (PMIs) showed deepeningfractures running through the European economy.
The divide between Germany and France, the eurozone’s two biggest economies, grew to its widest since the currency union’s inception in 1999.
The PMIs reflected how eurozone businesses were faring mostly before the inconclusive outcome of Italy’s general election, which unsettled international financial markets.
“Two months into 2013, we’ve been somewhat disappointed with the eurozone economy’s progress. The PMIs again reaffirm that,” said Victoria Clarke, economist at Investec in London.
“Germany’s doing a bit better than the rest of the pack, but in general, there’s no real sign there of stabilisation, or of the contraction at least bottoming out.”
Markit’s Eurozone Composite PMI, a broad gauge of activity at thousands of companies across the 17-nation bloc, fell to 47.9 in February from 48.6 in January.
Although that was a little better than a preliminary reading of 47.3, it was still well below the 50 mark dividing growth from contraction – as the index has been for just over a year.
Eurozone retail sales for January, showing a 1.2 per cent rise, were much better than expected, although economists cautioned that the underlying picture was still very weak.
British retail sales also grew at their strongest annual rate in almost two years last month.
The euro rose slightly against the dollar in response to the data.
European stock markets also rallied yesterday, although led by strong bank results.
Britain’s services PMI, which accounts for the bulk of its economy, hit a five month-high of 51.8 last month from 51.5 in January, beating the median forecast of 51.0 in a Reuters poll.
Economists expect comparable data from the US will show its non-manufacturing economy maintained a moderate rate of growth, slowing only slightlysince January.
Growth among Chinese services companies, which comprise a smaller proportion of its economy compared with Western peers, slowed from a four-month high in February.
For the eurozone, the outlook depends largely on whether Germany can keep up its economic growth and offset struggling France, Italy and Spain, according to Chris Williamson, chief economist at PMI compiler Markit.
“(That) seems a tall order, meaning hopes of a return to growth for the region by mid-2013 are now looking too optimistic,” he said.
Williamson said the latest surveys were consistent with the eurozone economy shrinking around 0.2 per cent this quarter, with only German strength saving the bloc from a downturn as bad as the 0.6 per cent decline at the end of last year.
The European Central Bank meets to decide monetary policy this week, although few economists expect any major announcements this month.
Whether the Bank of England will act this month to help boost the economy is a tougher call, despite yesterday’s unexpectedly strong services PMI.