The eurozone’s plunge into deep recession is leading companies to slash jobs at an ever faster rate even though the speed of the downturn has eased, a closely-watched survey has shown.
Purchasing managers’ indices for the 16-country region rose slightly in January, but remained consistent with a pace of economic contraction not seen since the launch of the euro more than a decade ago.
Eurozone businesses, meanwhile, cut employment for a seventh consecutive month – and at the steepest rate since the survey began in 1998. Germany – the eurozone’s largest economy – continued to perform particularly badly, hit by the slump in global demand for its exports.
The indices showed the eurozone downturn reached maximum intensity at the end of last year but that the recession was far from over, with its effect now spreading more broadly into the labour market.
“The near-term outlook for the Eurozone remains very bleak. Not only was the fourth quarter a disaster, the first quarter of this year does not look a lot better,” said Carsten Brzeski, European economist at ING in Brussels.
Chris Williamson, chief economist at Markit, which produces the survey, said this month’s readings were consistent with eurozone gross domestic product contracting by 0.7 per cent a quarter. “Job losses continued to mount as firms scaled back capacity at a pace never seen before,” he added. Earlier this week, the European Commission forecast eurozone gross domestic product would contract by 1.9 per cent this year, with German GDP plunging by 2.3 per cent – which would be the country’s worst performance by far since the second world war.
With the eurozone economic outlook continuing to decline, the European Central Bank is under pressure to cut interest rates further. But Jean-Claude Trichet, ECB president, made clear last week that it had already factored-in a further deterioration when announcing its latest cut of 50 basis points, and that no reduction was likely at its February meeting. Since early October, the ECB has slashed its main policy rate by 225 basis points to 2 per cent.
The “composite” eurozone purchasing managers’ index, covering manufacturing and services, rose from the record low of 38.2 in December to 38.5 in January. Manufacturers continued to report a much faster rate of decline than services. In Germany, the composite index hit a new low of 38, down from 39.5 in December.
The indices are regarded as offering a good, up-to-date guide to trends in economic activity. A figure below 50 indicates a contraction in output.