Despite Optimism, Europe is on Edge of Recession

With all the optimism that Europe is recovering from the debt crisis, all eyes are on released economic data. Today, we get the preliminary February Purchasing Managers Index (PMI) for the Europe.  As reported in Marketwatch: Weak PMI fans euro-zone recession fears.

The preliminary composite purchasing managers index fell to 49.7 in February from 50.4 last month, according to financial-information-services firm Markit, which compiles the index. A reading of less than 50 signals a contraction in activity.

Economists had forecast a rise to 50.8. The decline reflected a fall in the services PMI to 49.4 from 50.4 in January. The manufacturing PMI rose to 49.0 from 48.8 in January, a six-month high.

“A retreat back below the 50.0 no-change level for the euro-zone PMI is a disappointment, and highlights the ongoing risk that the region may be sliding back into recession,” said Chris Williamson, chief economist at Markit.

Euro-zone gross domestic product saw a quarterly contraction of 0.3% in the final three months of 2011 after growth of 0.1% in the third quarter. A recession is loosely defined as at least two consecutive quarters of shrinking GDP.

While analysts say that this report may or may not mean a recession will happen, I like to go to the source to see the details, which can be quite good.  Unfortunately due to the late hour and copyright laws, I am unable to include any information found in the source report because I do not have prior permission.  (I will work on this for the future.)

However, I encourage you to check out the report as it is only 3 pages and has commentary supported by numerous graphs.  If you simply want the highlights, skip to the Summary of February data on page 3.  The report can be found on Markit's website under Markit Commentary.  Here is a direct link to the PDF: Eurozone business activity slips back into contraction in February.

Looking at the trends in the graphs, the case can easily be made that the EU is on the edge of recession.  Personally with all the austerity, I do not foresee Europe avoiding a recession.  As noted in It's Just a Minor Flesh Wound, they're already halfway there.



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