Eurozone economy weakens further in May

06 Jun, 2012

All of the eurozone's major economies are now in various states of decline, according to business surveys that suggested even Germany is no longer immune to the tremors emanating from the likes of Greece and Spain. Tuesday's purchasing managers indexes (PMIs) showed the euro area's vast private economy shrank in May at the fastest pace in nearly three years, with company order books collapsing.
Markit's Eurozone Composite PMI, which surveys thousands of companies every month, fell to 46.0 in May from April's 46.7, its lowest reading since June 2009 and spending its fourth month below the 50 mark that divides growth and contraction. It was little changed from a preliminary reading. Of particular note was the suggestion Germany is no longer generating the sort of economic growth that kept the wider euro zone out of recession in the first quarter, with businesses seeing a mild downturn last month.
Greece, which unleashed the financial maelstrom that has ravaged the bloc, is due for a crucial second election in three weeks that may determine whether it remains a member of the currency union. The composite PMI's new business index last month slumped to 44.6 from 44.8 in April, its lowest reading since June 2009. The PMI for the services sector, which covers companies ranging from banks to restaurants, declined slightly to 46.7 in May from 46.9 in April - its lowest reading since October last year. It was a marginal improvement on a preliminary reading of 46.5.
It showed prices charged to consumers declined for a sixth straight month, suggesting ECB policymakers may be able to worry less about the threat of high inflation. Indeed, while most economists still think the ECB will hold interest rates for a long time, more than a third polled by Reuters last week were convinced it will soon cut interest rates below their present record low of 1.0 percent to help the economy.

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