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Euro Zone Manufacturing and Services Expansion Ease, Raising Concerns Recovery is Losing Momentum
Written by article default Thursday, 23 September 2010 06:51
Today, data released from the euro zone showed that growth is slowing down in the third quarter, echoing the European Commission forecasts released last week.Euro zone manufacturing eased its expansion in September to 53.6 compared with the prior 55.1, whereas services also plunged to 53.6 from the prior 55.9. Consequently, PMI composite plummeted to 53.8 relative to the previous 56.2.
The decline was triggered by the ease witnessed in the largest economy in the euro zone as German PMI manufacturing slipped to 55.3 from the prior 58.2, while services slumped to 54.6 from 57.2.
In France, manufacturing continued its expansion in September to 55.4 from the prior 55.1, but services expansion eased to 58.8 from the preceding 60.4.
Although the European Commission had raised growth forecasts for 2010 to around 1.6% compared with June's estimates of 1.0%, and to reach 1.4% instead of 1.2% in 2011, it mentioned that euro zone expansion in the second six months of the year would be moderate where it predicts 0.5% growth in the third quarter and 0.3% in the fourth quarter, showing that recovery remains “fragile” and “uneven.”
European economies, especially Germany that relies in its growth on exports, are negatively affected by the slow down in growth in global economies, led by the United States, the main trading partner for the euro area.
Also, an important fact is the string rebound in the euro against the dollar after hitting 4-year low against the greenback in June where it surged to a high of 1.3440 in September from a low of 1.1875 recorded in June.
However, after the news the euro retreated to 1.3347 from the day's opening at 1.3404 to snap some of its gains achieved in the last two sessions.
In September, the ECB left interest rate unchanged at 1.00% to support growth and is expected to keep at its low level to boost recovery that is expected to be slow amid the planned austerity measures announced by euro-area economies that are struggling to trim their budget deficits.
On the other hand, European leaders are doing great efforts to do financial overhauls by raising capital requirements while this month the ECB said it will give banks three-month loans in October, November and December in addition to seven-day and one- month funds that would be provided at a fixed interest rate until at least January 18.