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Portfolio > Economy & Markets

Fears Grow Over European Recession as Indexes Drop

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As Europe struggles to contain the eurozone debt crisis and austerity measures spread across the region, manufacturing and services output are both down in October, contracting at the fastest rate in over two years and leading the region closer to recession once more.

London-based Markit Economics reported Monday that a euro-area composite index based on a survey of purchasing managers in both sectors dropped to 47.2. In September it was 49.1. According to a CNBC report, economists surveyed for their expectations had predicted 48.5.

German manufacturing also fell, for the first time in two years, thanks to a combination of lower orders, backlogs, and drops in output. German investor confidence dropped to the lowest in almost three years this month. The outlook in the U.K. was no brighter, with a “steep deterioration in outlook for household finances,” which hit a six-month low, and a decline in job security and incomes even as debt levels rose for the seventh month in a row.

Ben May, an economist who specializes in Europe for international research firm Capital Economics, was quoted in the Daily Telegraph as saying that “It appears increasingly likely that the economy may now have slipped back into recession.” The fall in eurozone PMI, he said, “reflected steep declines in both the manufacturing and services indices, suggesting that the deterioration in growth prospects reflects developments both at home and abroad. On past form, the headline index is now consistent with a quarterly contraction in GDP of around 1%.”

Economist Nouriel Roubini (left), co-founder and chairman of Roubini Global Economics LLC, had even more dire words. He tweeted that eurozone politicians were “hell-bent to commit growth harakiri” as “financial engineering without growth soon will lead to defaults and euro zone break-up.” In a Bloomberg report, he added that there was a 50% risk that the U.S., the U.K. and the euro region will fall into recession in the next 12 months.

Reuters quoted Peter Vanden Houte, an economist at ING Group in Brussels,saying, “This is a miserable report, highlighting the fact that the euro zone is falling into recession again. The snail-like progress in the resolution of the European debt crisis is unlikely to alter this picture soon.”


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