Outlook darkens as Europe sinks, China struggles

Thu Jun 21, 2012 6:31am EDT
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By Jonathan Cable

LONDON (Reuters) - The downturn in the euro zone's private sector is becoming entrenched and Chinese factories are finding the going increasingly tough, business surveys showed on Thursday, painting a darker outlook for the world economy.

June was the fifth consecutive month that activity across the euro zone has declined, dragging down heavyweights Germany and France and putting pressure on the European Central Bank to take further action to support the economy.

"We are at the point where the economy is increasingly losing traction and it's hard at this stage to see what will give us a lift. The ECB will do more, that will probably involve a rate cut - which is symbolic - but is action," said Peter Dixon at Commerzbank.

With economic recovery showing increased fragility in the United States, the Federal Reserve delivered another round of monetary stimulus on Wednesday and said it was ready to do even more to help if the situation in Europe deteriorated.

Data due later from the United States is expected to show manufacturing growth in the world's largest economy slowed this month but that there was a slight fall in new claims for unemployment benefits.

The euro zone's private sector contracted at its fastest pace since June 2009, when the bloc was mired in a deep recession, according to Markit's Flash Composite Purchasing Managers' Index for June.

A combination of the services and manufacturing sectors which is seen as a guide to growth, the PMI fell to 46.0, slightly better than the fall to 45.5 predicted by economists in a Reuters Poll.

But the index has been below the 50 mark that divides growth from contraction in all but one of the last 10 months. <EUR/PMIS> The euro fell after the data and European stocks traded lower.   Continued...

An employee works on a car engine along a Geely Automobile Corporation assembly line in Cixi, Zhejiang province June 21, 2012. REUTERS/Carlos Barria