more-arw search

Eurozone outlook poor for 2013

As low consumer demand joins with poor business confidence, the Eurozone recession is likely to continue into 2013. While firms like PwC note that the continued state of low business activity may lead countries to leave the Euro in favor of local currencies, a slowing rate of decline suggests that the recession, while lingering into the coming year, may not last much longer.

Markit Economics recently released its Eurozone Composite PMI scores, which show downturn continuing into November as economic activity drops across France, Italy, Spain and Germany. While the PMI composite index for France and Spain reached three-month highs, Italy continued on a downward slope, reaching a three-month low of 44.4 last month. A score below 50 on this scale indicates contraction.

According to the BBC, Ireland was the only European nation to report growth in business activity, reaching a PMI score of 55.3, a two-month low for the country. Business Eurozone outlook in France, Italy and Spain appeared to contract, even with rates of decline slowing in France and Spain and the countries achieving three-month highs in business output.

Business confidence
Eurozone business confidence for service providers remained low in November, with those in Germany expecting to still experience low activity at least 12 months from now. However, the Eurozone outlook was overall promising for these companies, with Markit expecting them to experience a slight increase in business activity over the next year.

"There are signs that the recession may have reached a nadir," said Chris Williamson, chief economist at Markit. "It is reassuring to see that the final Eurozone PMI reading came in higher than the earlier flash estimate." In particular, manufacturing output fell to its lowest rate in seven months, but business services exceeded expectations in November.

Inflation falling
Research from the Eurozone Future Inflation Gauge and produced by the Economic Cycle Research Institute (ECRI) found that price pressures within the Eurozone fell in October to June's 27-month low, with inflation rates slowing down for France, Spain and Italy. While the overall inflation gauge score fell from 93.7 to 93.3 in October, Reuters reports that Germany's inflation rate has remained stable. As inflation for the Eurozone slowed overall to its lowest rates since December 2010, October saw unemployment rise to new record highs.

Markit notes that strong competition and poor demand led to eroding price power in November, with the average service charge dropping for the twelfth consecutive month. The firm also found that November saw a continued ease in inflation.

Payroll and finance
The challenges faced by the Eurozone could affect investments, accounts receivable reserves and goodwill impairment assessments, PwC notes. For workers, the current recession led to reduced payroll for the eleventh month in a row in November as the rate of job loss rose. Ireland was the only country to report an increase in staffing in November, with Italy and Spain seeing significant cuts.

The Eurozone recession has led to widespread concern across Europe and abroad. Although it's likely the recession will continue into 2013, signs of growth are evident with inflation rates improving and some businesses experiencing burgeoning confidence levels. While this is not a uniform state across Eurozone companies, the fact proves promising that others may follow.

Products and Companies: