Debt crisis: eurozone headed for recession as economic rot spreads

Thursday, August 23, 2012
By Paul Martin

The eurozone looks destined for its second recession in three years, as business surveys showed the economic rot is even spreading to Germany, the region’s largest and strongest economy.

23 Aug 2012

A debt crisis which began in the euro zone’s smaller economies is now hammering business and consumer confidence across the bloc, putting pressure on policymakers to take radical steps to help vulnerable countries such as Spain and Italy.

More worryingly, the rot in smaller euro zone economies is now taking root in the core, with the flash composite PMI for Germany, falling to a three-year low of 47.0 in August.

“Hopes that German economic strength will aid recovery in the broader currency union were dealt a blow by its rate of economic contraction accelerating, and further signs that its export engine has slammed into reverse gear,” said Rob Dobson, senior economist at Markit.

Business activity in France, the eurozone’s second biggest economy, contracted for the sixth consecutive month to 48.9 according to its composite PMI, although the August reading is not as bad as July’s reading of 47.9.

The eurozone economy contracted by 0.2pc in the three months to June, official data showed this month.

Interest rates are already at record lows and the European Central Bank is expected to cut them by 25 basis points to 0.5pc when it meets next week, which analysts say will do little to stimulate lending.

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