European services and manufacturing output contracted at the fastest pace in more than two years in October, adding to recession signs as government leaders try to stamp out the sovereign debt crisis.
A euro area composite index based on a survey of purchasing managers in both industries fell to 47.2 from 49.1 in September, London-based Markit Economics said in an initial estimate today. That's the lowest since July 2009 and below the 48.8 forecast by economists, according to the median of 17 estimates in a Bloomberg survey.
The European Central Bank this month resisted calls to lower interest rates even as the economy is showing indications of a deepening slowdown, instead extending its use of unconventional tools. Business confidence in Germany, the region's biggest economy, slumped to a 16-month low in October and euro-area consumer sentiment is at the weakest since 2009.
"This is a miserable report, highlighting the fact that the euro zone is falling into recession again," said Peter Vanden Houte, an economist at ING Group in Brussels. "The snail-like progress in the resolution of the European debt crisis is unlikely to alter this picture soon."
The euro extended declines against the dollar on the data and traded at $1.3853 at 10.29 am in London, down 0.3 per cent on the day.
RECESSION RISK
The euro-area economy probably failed to gather strength in the third quarter, expanding 0.2 per cent from the previous three months, the European Commission in Brussels estimates. In the fourth quarter, it may expand just 0.1 per cent, it forecasts. The ECB last month also cut its growth projections for this year and next to 1.6 per cent and 1.3 per cent.
Nouriel Roubini, co-founder and chairman of Roubini Global Economics LLC, said today there's a 50 per cent risk that the US, the UK and the euro region will fall into recession in the next 12 months. German investor confidence dropped to the lowest in almost three years this month.
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European leaders are inching toward a revamped strategy to contain the Greece-fuelled debt crisis. At a summit in Brussels yesterday, they ruled out tapping the European Central Bank's balance sheet to boost the region's rescue fund and outlined plans to aid banks.
Leaders of the Group of 20 nations will meet in Cannes, France, next month to discuss the region's turmoil, which has rattled global equity markets and clouded growth prospects.
'HARD TO ESCAPE'
"Negative growth now seems hard to escape in the fourth quarter," Vanden Houte said. "This is likely to spill over into 2012," he said, adding that "we now only expect a 0.5 per cent GDP expansion next year, further jeopardising the debt consolidation plans in most member states."
The ECB on October 8 opted to extend emergency cash to banks and resume purchases of covered bonds to help contain the debt crisis. The central bank has also been forced to purchase bonds of distressed nations such as Italy and Greece as governments struggled to reach an agreement on their crisis-fighting tools.
Deutsche Bank AG, Germany's largest lender, on October 4 scrapped its profit forecast and announced 500 job cuts and further writedowns on Greek bond holdings, citing a "significant and unabated slowdown in client activity."
"We have a strong and diverse client focus franchise, but it's relatively exposed to a slowdown in Europe," Chief Executive Officer Josef Ackermann said. "Europe was, of course, not particularly successful in the last few months."
EUROPE'S FINANCES
Underscoring the stress on Europe's finances, Moody's Investors Service said earlier this month that France's top credit rating is under pressure as the debt crisis has led to a "deterioration" of its government finances. The company on October 18 cut Spain's credit rating for the third time in 13 months.
"It's not possible to get the once and for all solution the markets were hoping for," Otto Waser, chief investment officer at Research & Asset Management AG, told Bloomberg Television from Zurich ahead of today's report.
"Europe is close to a recession, the debt crisis isn't resolved."
The euro area services indicator fell to 47.2 this month from 48.8 in September, today's report showed. The manufacturing gauge dropped to 47.3 from 48.5 in the previous month. Markit will report final October figures next month.