European Recession Fears Grow as Data Weakens
>>>Global ... lets coin a new phrase ..... Decession...or perhaps ... Repression .... Decession is better and more distinct. The Euros have at least acknowledged the inflation and the need to raise rates, and the willingness to pay the piper. This is not going to be a little Greenspanesque two quarter slowdown. It will trump the Nixon Carter misery index malaise. I don't think that we will hit full depression status. You know ... a decession. Close to deceased but w/o the ugly ramifications.<<<
By EMMA CHARLTON and JOEL SHERWOOD
July 1, 2008 12:34 p.m.
LONDON -- European recession fears grew Tuesday as Denmark became the first country to slip into a technical recession and a raft of weak data indicated others could soon follow.
European stocks fell sharply as traders worried about the region's growth outlook and economists tipped Italy, Spain, Portugal and Ireland at most risk of recession while the U.K. and France face sharp slowdowns.
Danish first-quarter gross domestic product fell a seasonally-adjusted 0.6% on a quarterly basis after the economy in the fourth quarter contracted 0.2%, data from Denmark's national statistics agency showed Tuesday.
With two consecutive quarters of negative growth, that means the Danish economy fits a widely accepted definition of a recession.
The Irish and Portuguese economies both contracted in the first quarter and are threatened with another in the current period. Italy narrowly averted a second consecutive contraction in the first quarter, but faces another test in the second period. Spain, while still in positive territory, also is seen at risk as business activity plummets.
Europe's economies are currently facing a toxic combination of elevated inflationary pressures, higher oil prices, strong exchange rates, weakening global growth and tight credit conditions. Countries including Denmark, Spain, the U.K. and Ireland also face falling housing prices after a recent boom.
Leading indicators point to substantially slower growth over the coming quarters, with an increased risk of recession.
The Purchasing Managers' Index for the euro zone's manufacturing sector contracted in June for the first time in three years, dropping to 49.2 in June from 50.6 in May, research group Markit Economics said Tuesday.
A PMI reading above 50 signals an expansion in manufacturing, while a level below 50 indicates a contraction.
Activity levels in three of the currency bloc's four largest economies wilted with only Germany showing expansion over the month.
"France is clearly heading in the same direction as Spain and Italy, which are both contracting at alarming rates," said Jacques Cailloux, an economist at Royal Bank of Scotland.
Euro zone unemployment increased for the second straight month in May, rising by approximately 67,000 on the month after an increase of 52,000 in April, Eurostat data showed Tuesday.
There's "mounting evidence that the euro zone is heading for a major economic slowdown... with a no-longer negligible risk of a recession," said Holger Schmieding, an economist at Bank of America.
Spanish Finance Minister Pedro Solbes said Tuesday his country will avoid recession but that growth in the second quarter will be lower than that in the first.
"The way I see the situation is that we had 0.3% growth in the first quarter; growth will possibly be less in the second," Mr. Solbes said at a meeting with journalists and business leaders in Madrid.
Spanish gross domestic product growth slowed sharply to a 0.3% quarterly rate and an 2.7% annual rate in the first quarter, from a 0.8% quarterly rate and a 3.5% annual rate in the fourth quarter, as a decade-long construction boom turned to bust.
Fresh data Tuesday confirmed the U.K. property boom is also unwinding as the Nationwide Building Society reported its house price index fell for the eighth straight month. Prices fell 0.9% on the month in June and were 6.3% lower on the year -- the biggest annual decline since 1992.
A shocking plunge in the purchasing managers' index to 45.8 in June from 49.5 in May added to U.K. woes.
"The news just goes on getting worse for the U.K. economy," said Michael Saunders, an economist at Citigroup. "Yesterday saw plunges in consumer confidence and mortgage approvals, plus signs of a squeeze on corporate liquidity. Today has brought another sharp fall in house prices plus signs that -- even with the stimulus from the low pound -- manufacturing activity is heading into recession." |
