The latest growth figures from the eurozone show that its economies could be heading for another recession.
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Factories contracted for a third month in a row and service sector companies dipped for a second month.
Markit’s Purchasing Managers’ Index slipped for both sectors more than a point to just over 47. Anything below 50 indicates a decline.
Germany’s manufacturing sector also shrunk for the first time in two years.
Paul Smith, Senior Economist at Markit, says there’s now a real danger of stagnation turning into recession.
“Germany and France are really the key companies keeping us out of recession at the moment. I think if you look at some of the forward-looking indicators, sentiment, inventories and order books in manufacturing… I think we’re definitely heading toward that.”
Richard McGuire, of Rabobank, also believes recession is likely:
“Our economists think that it’s a 50/50 chance that the eurozone will enter recession sometime soon. Obviously the risk of that increases [depending on] how much longer it takes to draw a line under the eurozone debt crisis.”
Europe’s leaders are still working on a plan to solve the debt crisis. Some economists say that their slow progress is now starting to hit even the strongest economies.
“It’s undermining investments, it’s undermining orders… people are starting to delay making these orders. So I think now we’ve lost these two pillars and we’re heading toward that dreaded recession again.”
Last week, Germany cut its 2012 growth forecast by nearly half to 1%. And the stakes at the next European summit on Wednesday have rarely been so high.
Bottom line: The eurozone’s private sector tipped further into decline in October, according to business surveys on Monday. They showed that the bloc’s economy is in serious danger of lurching from stagnation into outright recession.