Eurozone heading back into recession after factory output collapse
By
Hugo Duncan
Last updated at 10:46 AM on 3rd January 2012
The eurozone looks set to crash back into recession this year after a dismal end to 2011 for its manufacturers.
Factory output collapsed in the final
quarter of the year as the failure of
European leaders to tackle the single
currency debt crisis took its toll.
Research group Markit said its purchasing
managers’ index (PMI) of
manufacturing activity in the eurozone
– a key measure of health in the sector
– hit 46.9 in December.
Stalling production: Volkswagen cars on display in Wolfsburg, Germany
That was slightly better than the 46.4
in November but for a fifth month in a
row it was below the critical 50 level
that separates growth and decline.
Williamson, chief economist at
Markit, said it pointed towards a 1.5pc
fall in factory output in the final three
months of the year, leaving the eurozone
on the brink of another slump.
He added: ‘Eurozone manufacturing
is clearly undergoing another recession.
Despite the rate of decline easing
slightly in December, production
appears to have been collapsing across
the single currency area.
‘The survey also points to a strong
likelihood of further declines in the
first quarter of the new year, with
producers cutting back headcounts,
inventories and purchasing.’
Markit said production was down in
all 17 eurozone states in December.
It fell for a third month in Germany, a fifth month in France and Italy, an eighth month in Spain and a 28th month in Greece.
A prolonged slump in the eurozone would be bad for Britain as Europe is the UK’s biggest export market. Howard Archer, chief UK and European economist at IHS Global Insight, predicted a 0.4 per cent fall in eurozone GDP in the fourth quarter of 2011.
He said: ‘The fifth successive and still appreciable contraction in manufacturing activity during December maintains concern that the sector is leading the eurozone into recession.
‘Eurozone manufacturers are now
very much on the back foot and finding
life extremely challenging.’
German chancellor Angela Merkel
and French president Nicolas Sarkozy
have announced their first meeting of
2012 to tackle the debt crisis. Following
a series of ‘make or break’ summits
in 2011 that failed to find a solution,
the pair will meet in Berlin on January
9, ahead of a meeting of the European
Council at the end of the month.
Madrid underlined the scale of the problem when it admitted the Spanish deficit for 2011 may be higher than the 8 per cent forecast by the new government only last week.
‘We’ll need to see, but it’s possible that we have gone over the 8pc mark, though we expect that it hasn’t done so by much,’ said economy minister Luis de Guindos.
You and your money 
The UK IS trading more with the rest of the world, and we are starting to export more, and import less. We are starting to rebalance the economy, both form an import/export perspective, and also from the Eu/rest of the world perspective. It will take time, although it is happening. Germany is benefitting from the fact that the Euro is at a weaker level than it should be, thus aiding Germany's exports hugely, which is why unemployment in Germany is falling fast. However, the currency level and IR are both far too high for Spain, where unemployment is getting ridiculous, 21.52% now, compared with 8.60% in 2007. Germany now 6.50% compared to 8.40% in 2007. Fundamental economics are the reason, not anything else, and whilst the Eurozone 'leaders' sit on their hands, it will only get worse.
- Kevin Bailey, East Anglia, 04/1/2012 07:40
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