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Oct 23, 2014 8:18 AM

Eurozone survey rise does not ease recession fears

The Associated Press

LONDON (AP) A stronger than anticipated economic survey Thursday failed to inspire much optimism that the recovery in the 18-country eurozone and of France in particular would be anything but muted.

A broad survey of activity in the manufacturing and services sectors by financial information company Markit rose unexpectedly in October. However, the survey still pointed to modest growth, a conclusion that also lay at the heart of another gloomy assessment of the eurozone by credit rating agency Standard & Poor's.

"We believe that the eurozone's problems are still unresolved," said Standard & Poor's credit analyst Moritz Kraemer.

Since the summer of 2012, when European Central Bank President Mario Draghi said the bank would do "whatever it takes" to save the euro, a sense of calm has come over markets. Over recent months, however, concerns have mounted over the region's paltry levels of economic growth.

Markit said its composite purchasing managers' index for the eurozone a gauge of business activity across manufacturing and services rose to 52.2 points in October from 52.0 in September. Anything above 50 indicates expansion.

Timo del Carpio, European economist at RBC Capital Market, said there was nothing to suggest the recovery will be anything but "a sluggish and fragile affair."

The overall increase in Thursday's survey was largely due to an improvement in Germany, particularly its manufacturing sector. Germany's advance helped camouflage the problems afflicting France. Business activity in Europe's second-largest economy fell for a sixth successive month and deteriorated at the fastest rate since February.

"While the survey suggests the euro area has so far avoided a slide back into recession this year, a renewed downturn cannot be ruled out," said Chris Williamson, Markit's chief economist. "Growth is so anemic that increasing numbers of companies are being forced into laying off staff and slashing prices in an attempt to cut costs and boost sales through discounting."

Figures next month are expected to show the eurozone grew modestly in the third quarter after recording no growth in the second. Again, Germany is expected to be the main reason behind the overall advance.

In a report, S&P said it stood by its assessment of a year ago that the eurozone's underlying problems largely relating to debt have not been dealt with. In particular, S&P said Draghi's pledge, which lay behind the market calm, may have had the unintended consequence of governments deferring the "necessary but politically unpopular" structural reforms that it says are needed to boost long-term growth.

Reforms it touts include changes to the tax regime, labor markets, pensions and education as well as opening up sheltered sectors to competition. France and Italy are the two countries most economists think have been slow in pursuing reforms.

"How governments react to the current volatility and economic slowdown will be important determinants for the eurozone's future direction," said S&P's Kraemer.

Despite S&P's caution, markets enjoyed another solid day in Europe largely in the slipstream of Wall Street. The Stoxx 50 index of leading European shares closed up 0.8 percent.


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