Eurozone heading back into recession after factory output collapse
This is Money: 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.
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.