A technical recession in the eurozone? | FT Alphaville

A technical recession in the eurozone?

A couple of quarters of falling output is all it takes.

On Thursday morning, a flash estimate for March’s purchasing manager’s index suggested that the eurozone is in recession. The composite output index was 48.7, down from 49.3 in February, and is the sixth decline in business activity over the last seven months. The weakness was primarily in manufacturing, which saw its eurozone index fall from 49.0 to 47.7, rather than in services.

The PMI figures tend to lead GDP changes and are released significantly in advance (hence why they are valuable). If the relationship holds, the GDP figures will reveal two consecutive quarters of falling output. Here’s where we stand:

In terms of the impact of the slowdown on jobs, the Markit press release engages in some classic economist-speak by making one feel simultaneously comforted and terrified (emphasis on qualifiers ours):

Companies cut employment levels for the third month in a row, contrasting with rising headcounts over the prior 20 months. The rate of job losses was only very modest, but nevertheless the highest for two years.

And it’s not just a story of the periphery dragging down the core:

But hey, let’s not be too gloomy, cause there are at least some people out there, in the service sector, who are becoming less pessimistic increasingly optimistic:

A ray of hope that the downturn may prove short-lived was provided by service providers’ expectations for growth over the coming year improving for the fifth successive month to signal the highest degree of optimism since last July. Confidence improved in both France and Germany, but fell back slightly in the rest of the region.

Despite this, Markit chief economist Chris Williamson is, overall, feeling rather disappointed:

The further drop in the PMI is clearly a disappointment following the brief return to growth seen in January, and suggests that policymakers will need to seek ways to revive economic growth across the region again.

A sentiment that reminds FT Alphaville of this Dilbert cartoon.

Related links:
A case of the mild PMIs – FT Alphaville
Weak eurozone data point to recession – FT
Euro-Area Services, Manufacturing Shrink More Than Estimated – Bloomberg