The euro zone has returned to recession, according to a
prestigious survey closely watched by central bankers and
Output in the currency union has fallen for the second
straight month, according to the March Purchasing Managers'
Index (PMI) published by Markit Economics and
the decline has accelerated.
The news will reawaken the debate about whether the European
Central Bank and euro zone politicians are doing enough to save
the economy from a serious slump.
Chris Williamson, chief economist at Markit, said, 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.
The March PMI numbers painted a less sunny picture than
before for Germany and France, which largely caused the
deterioration in the euro zone as a whole. In particular, the
powerful German manufacturing sector has put in a disappointing
performance. Output showed anemic growth this month after a
strong showing in February.
The composite index of output for the euro zone as a whole,
including both manufacturing and private-sector services, fell
to 48.7 from 49.3. Any figure below 50 means a contraction in
The PMI figures suggest that the euro zone has entered
recession most commonly defined as two
straight quarters of falling output. Official figures show a
0.3 percent decrease in euro zone gross domestic product (GDP)
in the fourth quarter of last year. Economists said the Markit
PMI numbers for January to March indicate a further fall in the
first quarter of 0.1 percent or 0.2 percent.
This adds up to a mild recession (in contrast to the deep
recession of 2009). Markits March survey of purchasing
managers, however, has set economists and investors fretting
about two worrying questions: how long will the recession last,
and what are policymakers willing and able to do to end it?
The volume of new business fell at its sharpest pace since
December, the survey suggests, pushing backlogs of work down
for the ninth straight month. This indicates that output could
fall again in April. Companies continued to reduce headcount in
March a sign that they do not see a quick end to
In the short to medium term, politicians power to end
the decline in output is extremely limited. Last years
abrupt rises in euro zone sovereign bond yields forced most
member states to trim government budgets sharply in order to
bring yields back down by restoring fiscal credibility. Falling
output is more likely to prompt politicians to reduce spending
even further rather than increase it, since declining economic
activity increases fiscal deficits by reducing tax revenue. Yet
the politicians seem to have ruled out Keynesian measures to
use government spending to stimulate demand. Euro zone
governments current attempts to boost economic
growth through improving access to the
professions and cutting bureaucratic burdens on business, for
example are likely to boost GDP only in the