Eurozone is heading for new recession, shows Markit Flash PMI

A closely-watched survey suggests that the eurozone’s economy is set to contract by 0.5%-0.6% in the July to September quarter, tipping it into its second recession in three years.

The Markit Flash Eurozone PMI Composite Output Index, which measures new orders in manufacturing and services, was 46.6 in August, compared with 46.5 in July.

A score below 50 indicates contraction.

Output declined in both the manufacturing and services sectors, Markit said in a statement.

This is the seventh consecutive month of contraction in the eurozone’s private sector.

Rob Dobson, senior economist at Markit said: “The August Markit Eurozone Flash PMI reinforces the prevailing view of the economy dropping back into recession during the third quarter of 2012.

“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 eurozone’s economy was contracted by 0.2% in the second quarter of the year. A recession is generally defined as two consecutive quarters of negative growth.

Julien Manceaux, senior economist at ING, said: “The composite PMI still indicates a contraction of activity in the eurozone as a whole.

“In our view, this confirms that the decline in eurozone GDP [gross domestic product] in the second quarter is likely to be the first leg of a technical recession.”

Even Germany, the eurozone’s strongest economy, showed an accelerating decline in output, with its Composite Output Index falling to a 38-month low of 47.0, down from 47.5 in July.

German blue-chip companies ThyssenKrupp and Opel are reducing working hours because of weaker demand, while Bosch has announced it is negotiating reduced working hours with its workforce.

The findings contrast with more positive news relating to Germany’s public finances, which were back in the black for the first six months of the year, according to Destatis, the country’s federal statistics office.

Germany’s public accounts showed a surplus of 8.3 billion euros, about 0.6% of gross domestic product, thanks largely to record low unemployment figures.

But Germany’s second quarter economic growth of 0.3%, down from 0.5% in the first quarter, could fall further if Markit’s surveys prove accurate.

In France, decline in output slowed, with the composite PMI output index rising to a six-month high of 48.9.

However, some analysts saw glimmers of hope in the Markit figures.

Marie Diron, senior economic adviser to the Ernst & Young Eurozone Forecast body, said the data showed “signs of stabilization” in the eurozone economy and “supports our view that, while probably shrinking further, the eurozone economy is not falling off a cliff”.

She added: “The manufacturing surveys for both Germany and France showed better results for the manufacturing sector than last month.”

Earlier, the HSBC PMI survey for manufacturing in China indicated that activity in the sector fell to a nine-month low in August.

The PMI index was 47.8 this month, compared with a final reading of 49.3 in July.

Some analysts said the data indicated that the Chinese government’s efforts to boost the economy had not boosted firms’ confidence.

Meanwhile, the PMI measure for US manufacturing indicated that the sector saw a slight improvement this month, with the index rising to 51.9 from 51.4 in July.

Markit said that despite the increase – the first for five months – weak export markets meant overseas demand for US goods was subdued.