The durability of Europe’s recovery looked more doubtful on Wednesday after key business surveys showed dimming confidence about the prospects of economies that are pressing ahead with austerity measures.
Euro zone purchasing managers indexes showed private sector firms expanded at a slightly slower pace in June, but beneath the headline figures there was feeble demand for goods and services from consumers in the bloc’s biggest economy, Germany.
With European governments intent on cutting spending that supported recession-hit economies, Wednesday’s PMI and sentiment surveys suggest firms share many of the same worries as U.S. policymakers about withdrawing stimulus too quickly — shaping up to be a flashpoint at this week’s summit of G20 leaders.
The PMI index for business expectations in the bloc’s dominant services sector fell to its lowest since July 2009, while a separate survey on Wednesday showed confidence in France’s factories unexpectedly declined.
“The euro zone recovery continues but appears to be shifting into a lower gear,” said Martin van Vliet from ING Financial Markets.
“This is a clear indication that the pace of recovery will likely slow down in the second half of the year, as also indicated by the recent slowdown in other leading economic indicators,” he said.
There was a similarly mixed picture from Tuesday’s closely-watched German Ifo survey, which showed German business sentiment reaching its highest level since May 2008 — but also wilting expectations about the future.
A Reuters poll of economists earlier this month concluded that the Group of 20 nations were right to shift their rhetoric toward budget cuts from economy-boosting spending, but respondents noted the discord among member countries.
U.S. Treasury Secretary Timothy Geithner and top White House economic adviser Lawrence Summers wrote in a Wall Street Journal piece on Tuesday that G20 peers should not risk undermining growth for the sake of cutting deficits, echoing a similar call from President Barack Obama.
But on the same day, Britain’s new government unveiled its tightest budget in a generation.
The newly-created and independent Office for Budget Responsibility predicted that those measures would cut UK economic to 2.3 percent next year, from a previously forecast 2.6, but many economists think that is wildly optimistic.
Fiscally-conservative Germany has already announced some 80 billion euros worth of cuts for the next four years, despite a warning from Geithner before the last G20 summit that European countries had to do more to boost domestic demand.
A QUESTION OF GROWTH
The euro zone services PMI fell to 55.4 in June from 56.2 in May, although still comfortably above the 50 mark that divides growth from contraction.
Survey compiler Markit said the euro zone PMIs suggested the 16-nation bloc’s economy could have grown around 0.6 to 0.7 percent in the second quarter, compared to 0.2 percent in the first quarter and the Reuters consensus of 0.5 percent.
“The slight dip in the PMI in June confirms our view that sentiment in the euro zone economy has passed its peak,” said Christoph Weil, economist at Commerzbank.
“Even so, the emerging trend reversal in sentiment indicators does not signal a relapse into recession.”
Analysts polled by Reuters gave a one-in-four chance of a double-dip recession in the euro zone and do not expect growth to top 0.4 percent in any quarter from the second half of this year to the end of next year.
The new orders component of the German services PMI fell to 50.5 in June — indicating feeble consumer demand and inconsistent with a strong, self-sustaining recovery.
The business morale survey from French national statistics office INSEE also showed manufacturers were doubtful about the strength of the recovery ahead.
Its morale indicator for June fell to 95 from 97 in May, while the confidence in future individual levels of production fell to -7 from 3.
“Business leaders are worried about the future development of the recovery in Europe and specifically order levels which, although better than at the peak of the crisis, are not sufficient to sustain decent levels of activity,” said Frederique Cerisier, economist at BNP Paribas.
Italian consumer confidence also fell on Wednesday to 104.4, its lowest since March 2009, on fears about the poor state of consumer finances.
Even in Sweden, which was less damaged than most by the world financial crisis, its leading economic think tank cut its 2011 growth forecast on Wednesday from 3.8 percent to 3.0.
By Vicky Buffery
Tags: businesses, consumers, economists, european economy, financial crisis, financial markets, us treasury, wall street
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