Eurozone faces seventh quarter of contraction

Julian Harris
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THE EUROZONE economy kept going backwards at the start of this year according to the latest estimates from Brussels, while a separate business survey suggests that the recession has dragged on into the second quarter.

A second estimate of euro area GDP for January to March, published yesterday, maintained a 0.2 per cent dip – the sixth straight quarter of contraction.

Worsening the blow for the single currency area, Markit’s closely-watched purchasing managers’ index (PMI) for May, also released yesterday, suggested that the service sector shrank more severely than expected.

The services PMI came in at 47.2 for last month, worse than an earlier estimate of 47.5. The lower that a score is below 50, the faster the contraction.

Yet there was some good news in the report, as the Eurozone’s composite score – which includes output from much of the economy – rose to 47.7, up from April’s score of 46.9. This indicates that the Eurozone is in a slower decline than it was previously, with figures from its largest economies suggesting that the latest downturn may finally have bottomed out.

Germany moved back to economic expansion, the data showed, albeit by a very slight margin with a score of 50.2. And Spain, despite still being in recession, recorded a 23-month high with its score of 47.2.

“Policymakers and politicians will seek solace in the fact that the rate of decline has now eased for two consecutive months,” said Chris Williamson, Markit’s chief economist. Yet the bloc is still struggling to escape recession, with Williamson expecting another 0.2 per cent contraction in quarter two.

Retail sales across the Eurozone were down 0.5 per cent in April, compared to March, according to separate figures from Brussels’ Eurostat office.

“Hopefully, gradually improving consumer confidence and the boost to purchasing power from low inflation – it averaged just 1.4 per cent in May in the Eurozone – will provide some support to consumer spending over the coming months,” said Howard Archer of IHS Global Insight.