Europe still sleeping even as Japan, Britain stir

Sun Jul 21, 2013 3:53pm EDT
 
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By Alan Wheatley

LONDON (Reuters) - Another month, another listless set of business surveys is likely to show this week just how much the euro zone economy still has to do to get over its debilitating debt and banking crisis.

An index based on a poll of purchasing managers across the 17-country bloc probably edged up to 49.1 in July from 48.7 in June, but remained below the watershed of 50 that would signal a resumption of growth, according to economists polled by Reuters.

The single-currency area, which makes up about 20 percent of the global economy, has been shrinking since the fourth quarter of 2011.

Petr Zemcik, director of European economics at Moody's Analytics in London, is penciling in marginal growth in the final three months of 2013, but expects output for the year as a whole to drop by 0.5 percent.

Some economists think the euro area might have just escaped recession last quarter, but Zemcik said: "We are still on course for contraction. The euro zone most likely contracted in the second quarter and might contract in the third quarter as well."

The weakness is not confined to heavily indebted countries on the rim of the euro zone.

In Germany, the IFO business climate index for July is expected to have inched higher, but the economy is hobbled by the reluctance of firms to invest and by soft global demand: Germany's purchasing managers' index (PMI) for manufacturing has been stuck below the boom-bust line of 50 since February.

China, which takes nearly 7 percent of German exports, is a particular source of concern. HSBC/Markit's PMI for China on Wednesday is likely to produce another sub-50 reading.   Continued...

 
European Central Bank (ECB) President Mario Draghi takes part in the European Parliament's Economic and Monetary Affairs Committee in Brussels, July 8, 2013. REUTERS/Yves Herman