No escape from slump for Europe's top economies in July

Fri Aug 3, 2012 7:39am EDT
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By Andy Bruce

LONDON (Reuters) - Europe's biggest economies endured another torrid month in July as businesses battled slumping demand, according to surveys on Friday that gave scant hope the region will emerge any time soon from a malaise induced by a paralyzing debt crisis.

Purchasing managers indexes (PMIs), which gauge business activity and have a good record of tracking economic growth, showed order books at euro zone companies shriveled last month as a downturn in Germany and France became more entrenched.

And growth in Britain's dominant services sector slowed to a crawl in July, casting fresh doubt over whether its economy will rebound from a contraction in the first half of the year.

Overall, the PMIs pointed to a recession-laden second half of the year for most of Europe's biggest economies, at odds with their portrayal of steady but unspectacular growth in Asia and the United States.

At the heart of the region's problems is the sovereign debt crisis, which has pushed government borrowing costs in big economies like Spain and Italy to unsustainable levels and stamped on consumer and businesses confidence.

European Central Bank President Mario Draghi warned the risks to economic growth in the euro zone are on the downside after its policy meeting on Thursday, while sidestepping immediate action to calm the debt crisis.

"If you look at the breakdown by country, it suggests that recession is going to be pretty broad-based and it's not purely down to developments in the (euro zone) periphery," said Ben May, European economist at Capital Economics in London.

The composite euro zone PMI rose marginally in July to 46.5 from 46.4 in June, but was still well below the 50 threshold that marks growth. Survey compiler Markit said it was consistent with a 0.6 percent quarterly rate of economic decline.   Continued...

France's President Francois Hollande (R) and German Chancellor Angela Merkel stand at lecterns during the 50th anniversary ceremony of the reconciliation meeting between former French president Charles de Gaulle and German Chancellor Konrad Adenauer after World War Two, in Reims July 8, 2012. REUTERS/Jacky Naegelen