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European Service Activity Contracts For First Time In Two Years As Global Recession Now Ensured
While the bulk of the re-recessionary fears this morning came out of China where economic contraction is now fully raging, Europe is not helping after both Manufacturing and Services Flash PMIs came in worse than expected, and far worse than previous, and more notably with the Services PMI printing below 50, or contracting for the first time in 2 years. In a nutshell, Manufacturing came in at 48.4, Services at 49.1, both missing consensus of 48.5 and 51.0, and far lower than prior 49.0 and 51.5 respectively. As Reuters notes, "None of the 37 economists polled by Reuters had predicted that services activity would contract and this is the first time the index has been below the 50 mark that divides growth from contraction since August 2009....It was a similar picture in the manufacturing sector, which had driven a large part of the bloc's recovery. The factory index dropped to its lowest level in two years at 48.4, slightly below expectations of a fall to 48.5. "The numbers are still consistent with some GDP growth, so it does not signal recession just yet," said Martin Enlund at Handelsbanken. "That said, we are seeing a slow-motion train crash in the euro area, where credit contraction risks leading to a new recession by Christmas unless governments face up to the task swiftly and forcefully." In other words, on one hand I) the perpetual shining beacon in Europe: economic growth against all odds courtesy of Germany, has now been dimmed, and on the other, II) the liquidity run on Europe's banks is raging even harder, especially with II being reinforced by I, and immediately sending BNP 3M USD Libor from 0.385% to a year+ high of 0.39% as the average Li(e)bor has risen for nearly the 50th consecutive day from 0.356% to 0.358%.
Goldman's take:
Looking at the components, the forward-looking indicators suggest the risk of weaker demand, namely an acceleration in the rate of decline in incoming new orders reported by manufacturers and falling confidence about the year ahead in the services sector. This raises the risk of further contraction in the coming months. At the same time, companies surveyed reported the weakest rise in employment since last October. Judging from past quarterly correlations, a Composite PMI averaging 50.3 in Q3 is consistent with real GDP growth of between 0.1% and 0.2%qoq.
At a national level, we only have Flash estimates for Germany and France, where both manufacturing output and services activity softened, but stayed above 50. The euro-zone aggregate composite fell by 1.8 points to 49.2; this suggests a sharper contraction in activity across the Euro-zone’s periphery countries.
Although a slowdown in global growth is likely to be the key reason for the decline in Euro-zone sentiment, the current regional pressures on banks –due to uncertainty about the sovereign crisis - and the significant deterioration in their funding situation may have affected surveyors’ confidence. The fear that these financing problems could translate into higher borrowing costs for Euro-zone corporates could have dampened business sentiment.
More from Reuters on Europe's contraction:
Business activity in Germany come close to stalling in September as demand for its exports and domestic consumer morale flagged, a survey showed, underscoring a loss of momentum in Europe's top economy at a vulnerable time for the euro zone.
Markit's German composite output index -- combining the services and manufacturing sectors -- dropped to its weakest level since July 2009 with a reading of 50.8, hovering just above the threshold of 50 that separates expansion from contraction. The PMI index stood at 51.3 in August.
New orders fell for the third month running, painting a gloomy picture for future growth.
"The powerhouse of Europe is on its knees," said economist Chris Williamson of Markit about Thursday's data.
Germany, which notched up growth of 3.6 percent in 2010, has been one of the best-performing economies in the industrialised world since the end of the 2008 financial crisis.
The government still says it expects gross domestic product growth of 3 percent this year, which would provide vital stimulus to a euro zone that has become increasingly dependent on Germany as its key engine for growth as the region's debt crisis has intensified.
But Germany's quarterly GDP growth slowed more than expected in the second quarter to just 0.1 percent and exports fell more than expected in July.
"We could see only very modest growth in the third quarter and possibly even a contraction in the fourth," Williamson said.
Service providers' business expectations for the coming year slipped below 50 for the first time since April 2009, a clear harbinger of a future slump, he said.
The reading stood at 48 in September, having plunged from a level of 66.3 in January, a seven-year peak.
The ZEW think tank's monthly survey released on Tuesday showed German investor sentiment fell to its lowest level in nearly three years in September on worries about the debt crisis.
In other words for those who think Op Twist is to a full blown $2 Trillion QE3 as 2010's QE Lite was to 2010's QE 2, you are correct. Insanity. Over and over.
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'In other words for those who think Op Twist is to a full blown $2 Trillion QE3 as 2010's QE Lite was to 2010's QE 2, you are correct. Insanity. Over and over.'
He's sooooo out of bullets.
the german economy is very far more economically sound and is approaching the final solution.
covert3.wordpress.com
negative gdp 3 & 4
"The Powerhouse of Europe is on it's knees".
Like 1919? Or 1945? Oh, it's about only 3% growth.
Interesting what is being written when the TBTF have decided it's "push the dollar up" season...
We knew that this moment would come
Except for the stupid and numb
Ayn Rand showed the way
To immoral decay
My God Allen Greenspan was dumb
Despite the protests of some
The Austrian school isn't dumb
Bernanke tried to bray
But we said no damn way
Get down on your knees for my HOME HOME ON THE RANGE
Fuel up the helicopter, Timmy. We've got some drops to make.
Barack, go on TV and tell the American people we're printing them into prosperity. They'll be so dazzled by your charm they won't realize how we're fucking them without lube.
Bernanke stands before the World with a shriveled dick.
A little question. After doing Operation Twist... can Bernanke just start expanding his balance sheet by buying more assets? Or will that screw the treasuries they own?
Bernanke has got the 'Reverse Midas Touch'. Everything he touches turns to shit.
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