Gloomy economic data released on Thursday showed that the eurozone's manufacturing and services sectors both contracted this month. Analysts said this piles pressure on the European Central Bank to step in to stop the economy worsening, at a time when Europe's debt crisis is threatening the world economy. "The recovery has finished, we are now contracting," said Chris Williamson, chief economist at Markit, which published the data. Surveys of purchasing managers' indices show that eurozone service industries are shrinking for the first time in two years, while manufacturing output hit a two-year low. The Markit eurozone services survey, which gauges business activity at firms from banks to restaurants, slumped to 49.1 this month from August's 51.5. This is the first time since August 2009 that the services index has fallen below the 50 mark that separates growth from contraction. The composite PMI, which combines the services and manufacturing data, fell to 49.2, its first contraction since July 2009, from 50.7 last month. Factory output contracted for the second month running, with the manufacturing PMI dropping to 48.4. "Today's flash eurozone PMI figures make grim reading and raise the spectre a renewed economic downturn in the 17-country region. The current [composite] index level indicates that the eurozone recovery has ground to a complete halt," said Martin van Vliet, an ING economist. "The figures reinforce our suspicion that the eurozone economy as a whole might contract slightly in the second half of this year. At the same time, with ongoing fiscal austerity and political leaders still way behind the curve in terms of resolving the debt crisis, we cannot dismiss the risk of a full-blown recession. "This data will amplify pressure on the ECB to come to the rescue and use the remaining scope for monetary stimulus," he said. The ECB has been criticised for raising interest rates earlier this year, and some economists believe it may have to perform a U-turn. "Pressure is mounting on the ECB to quickly reverse its recent monetary policy tightening cycle rather than just halting it, with a near-term interest rate cut," said Archer.The eurozone's private-sector economy is shrinking for the first time since the depths of the last recession, sparking warnings that the region's economic recovery is over.
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Friday, September 23, 2011
Gloomy economic data released on Thursday showed that the eurozone's manufacturing and services sectors both contracted this month. Analysts said this piles pressure on the European Central Bank to step in to stop the economy worsening, at a time when Europe's debt crisis is threatening the world economy. "The recovery has finished, we are now contracting," said Chris Williamson, chief economist at Markit, which published the data. Surveys of purchasing managers' indices show that eurozone service industries are shrinking for the first time in two years, while manufacturing output hit a two-year low. The Markit eurozone services survey, which gauges business activity at firms from banks to restaurants, slumped to 49.1 this month from August's 51.5. This is the first time since August 2009 that the services index has fallen below the 50 mark that separates growth from contraction. The composite PMI, which combines the services and manufacturing data, fell to 49.2, its first contraction since July 2009, from 50.7 last month. Factory output contracted for the second month running, with the manufacturing PMI dropping to 48.4. "Today's flash eurozone PMI figures make grim reading and raise the spectre a renewed economic downturn in the 17-country region. The current [composite] index level indicates that the eurozone recovery has ground to a complete halt," said Martin van Vliet, an ING economist. "The figures reinforce our suspicion that the eurozone economy as a whole might contract slightly in the second half of this year. At the same time, with ongoing fiscal austerity and political leaders still way behind the curve in terms of resolving the debt crisis, we cannot dismiss the risk of a full-blown recession. "This data will amplify pressure on the ECB to come to the rescue and use the remaining scope for monetary stimulus," he said. The ECB has been criticised for raising interest rates earlier this year, and some economists believe it may have to perform a U-turn. "Pressure is mounting on the ECB to quickly reverse its recent monetary policy tightening cycle rather than just halting it, with a near-term interest rate cut," said Archer.The eurozone's private-sector economy is shrinking for the first time since the depths of the last recession, sparking warnings that the region's economic recovery is over.
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Shares in some of Europe's largest banks fell by 10pc as the cost of insuring European lenders' senior bonds rose to record levels, according to credit default swap prices. The Markit iTraxx Financial Index of contracts on the senior debt of 25 banks and insurers climbed to an all-time high 315.5 basis points.
The last banking crisis was regarded by most eurozone members as an Anglo-Saxon phenomenon caused by lax lending controls that resulted in major UK and US institutions either collapsing or having to take costly state-funded bail-outs.
To offset the threat of another crisis spreading across the eurozone, European regulators ordered their banks to increase their liquidity buffers. Government bonds were generally viewed as the most liquid and least risky assets to hold. However, this policy has come back to haunt them, leaving many lenders across the region seriously exposed to the eurozone sovereign debt crisis.
French banking giants BNP Paribas and Société Générale are among the hardest hit. Recent estimates suggest BNP has eurozone sovereign debt exposure of about €75bn (£65bn), amounting to roughly 6pc of total assets, including €14bn of Greek debt and €21bn of Italian government bonds. The other two major French banks, SocGen and Credit Agricole, each have exposures of a similar size.
Between them, France's banks have about €56bn of Greek sovereign bonds alone, and have so far taken 20pc writedowns on this
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