Indexes suggest recession will tighten grip on eurozone | Business| Economy and finance news from a German perspective | DW | 24.05.2012
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Indexes suggest recession will tighten grip on eurozone

Political turmoil in Greece and Franco-German differences over how to spur growth are weighing heavily on business confidence in the eurozone. Sharp falls recorded by two key indicators reflect a growing unease.

According to its Purchasing Managers Index (PMI), eurozone business activity in May suffered its worst monthly decline in almost three years, London-based Markit research group said Thursday.

The PMI fell to 45.9 points from 46.7 points in April, Markit said, affected by a "marginal fall" in business confidence in Germany, and the fastest rate of decline since April 2009 recorded in France. Any PMI score below 50 points suggests economic contraction.

"The results are broadly consistent with gross domestic product falling by at least 0.5 percent across the region in the second quarter," said Markit Chief Economist Chris Williamson, adding that even GDP in Germany was "at risk of falling slightly."

Howard Archer, analyst with HIS Global Insight, told AFP news agency that the PMI index was "truly dismal" with the only redeeming feature being an easing of inflation.

"There still seems [to be] a reluctance within the European Central Bank to take interest rates below 1.0 percent, but this will become ever more compelling if eurozone economic activity does not show any sign of improvement in the near term," he added.

Ifo index falls in line

A worsening of the eurozone debt crisis was also a major concern for German business leaders, the Ifo economic institute said Thursday.

The institute's closely watched business climate index fell to 106.9 points in May, down from April's figure of 109.9 points.

The index hit its lowest level since November 2011 and has ended six consecutive months of rising business confidence in Europe's biggest economy.

"The recent surge in uncertainty in the eurozone is impacting the German economy," said Ifo President Hans-Werner Sinn, as the barometer fell in spite of a 0.5 percent rebound in German GDP growth in the first quarter of 2012.

The Ifo index fell in both of its sub-indices with assessments of current business down to 113.3 points from April's 117.5, and the outlook sub-index declining to 100.9 from 102.7.

HSCB Trinkhaus analyst Stefan Schliebe told Reuters news agency that he believed Germany "won't be able to sustain" the strong growth figures of the first quarter and that the second quarter will be "much weaker."

uhe/mll (Reuters, AFP)