Euro flat as single currency region’s business output slows

The
euro is flat against most of its foreign currency exchange partners
today (February 22nd) after official data released yesterday
showed the single currency region’s businesses are still
struggling.

This is despite recent statements from eurozone leaders that the
worst of the sovereign debt crisis is over and the recovery can
begin.

London-headquartered Markit Economics revealed quite a different
picture to that painted by commentators indicating the 17-nation
bloc can look forward to a more prosperous 2013, as its composite
purchasing managers’ index (PMI) for manufacturing and services
fell to 47.3 this month from 48.6 in January.

PMIs work in such a way that readings higher than the benchmark of
50 indicate expansion, while those that come in under this figure
signify contraction.

Therefore, the eurozone’s manufacturing and services sectors –
which are already in a difficult state – are in decline at the
fastest downward pace in nearly four years.

A poll of 22 economists taken by Bloomberg had forecast Markit’s
reading for February would be 49.

Germany’s services sector declined by more than expected too,
sliding to 54.1 on the PMI index, while its gauge for factory
output rose above 50, indicating expansion in the industry.

This data reinforces indications the eurozone’s economy will
remain in a state of contraction for the first quarter of the
year.

The European Central Bank (ECB) forecasts that gross domestic
product will decline by 0.3 per cent in the single currency region
this year.

Markit’s manufacturing index slipped to 47.8 from January’s 47.9
and the final reading for the month will be published on March 1st,
while the organisation’s current services index fell to 47.3 from
48.6.

Germany – which is the largest economy not only in the eurozone
but the wider European Union – saw its services PMI slide to 54.1
in February from 55.7, which is the sharpest decline since August
2012. Germany’s manufacturing index rose to 50.1, moving into a
state of expansion for the first time in a year.

By contrast, struggling France – which is another major economic
power in the single currency region – saw its services index slide
to 42.7 in February from January’s dismal 43.6, while its
manufacturing PMI increased but remained firmly in dire straits,
gaining from 42.9 to 43.6 in February.

Despite this gloomy PMI news, the president of the ECB Mario
Draghi has remained positive, claiming the eurozone will begin its
gradual recovery later this year as monetary stimulus percolates
through the economy.

A Bloomberg survey of economists revealed the eurozone is likely
to see its economy shrink by 0.1 per cent in the first quarter
before returning to a state of expansion in the three months ending
at the end of June.

Chief economist at Markit Chris Williamson stated: “A steepening
rate of decline in February is a disappointment and suggests that
the eurozone is on course to contract for a fourth consecutive
quarter in the first three months of the year.

“However, despite the fall in the PMI, the first quarter decline
in the economy should be less severe than the 0.6 per cent drop in
GDP seen in the final quarter of 2012, with a contraction of
0.2-0.3 per cent looking likely.”

At 11:35 GMT, the euro was flat against the pound and the dollar,
making marginal losses to 1.318 USD and 0.863 GBP.