An alarming August slump for the eurozone giant Germany yesterday heaped more pressure on the European Central Bank to use its financial firepower to tackle the region's lingering debt crisis.
The deepest slide in more than three years for Germany's private sector looks virtually certain to condemn the eurozone to a double-dip recession, according to the financial information firm Markit's latest snapshot of the region's economic health.
Europe's economy suffered a seventh successive month of contraction during August as worsening conditions for services firms more than offset a slightly better performance from manufacturers. But even more worryingly, Germany's downturn gathered pace over the month as new business and export orders fell away at the fastest rate since April 2009. The latest economic pain comes ahead of a crucial September ECB meeting at which markets expect president Mario Draghi to flesh out more details of the central bank's response to the crisis. Despite opposition from the Bundesbank, Mr Draghi has dropped clear hints that the ECB is ready to intervene to bring down the debt costs of eurozone strugglers such as Spain and Italy, both mired in recession.
Experts said it was up to the central bank to act to prevent the fallout spreading further. After a 0.2 per cent slide between April and June, another decline now looks unavoidable, condemning the eurozone to a technical double-dip, Markit said. Its senior economist Rob Dobson said Germany's export engine had "slammed into reverse gear".
He warned: "Taken together, the July and August readings would historically be consistent with GDP falling by around 0.5 per cent to 0.6 per cent quarter-on-quarter, so it would take a substantial bounce in September to change this outlook."
It's a crucial week for the eurozone as Greece prepares to plead for extra time to meet the terms of its €130bn (£103bn) bailout. Greece's Prime Minister, Antonis Samaras, is set to ask for two more years to cut its deficit to 3 per cent to help its economy – mired in recession for the past five years – to return to growth.
The ONS is expected to revise its second quarter GDP figures for the UK higher today, albeit to still show a 0.5 per cent contraction in the economy in the three months to July.