Surveys point to deeper eurozone contraction

Eurozone economies are likely to be heading deeper into recession and even Germany is now under growing pressure, a clutch of new surveys suggested yesterday.

The composite Purchasing Managers' Index for the single currency area, which provides a snapshot of the continent's services and manufacturing sectors, fell to 45.9 in May, down from 46.7 in April. This is the lowest reading since June 2009. Any figure below 50 indicates a contraction in activity.

"[The] dismal PMI figures clearly indicate that the eurozone economy remains in dire straits... and provide a clear warning that eurozone GDP will almost certainly show a contraction in Q2 after stagnating in Q1," said Martin van Vliet of ING.

France and Germany, the two largest economies in the single currency, both showed weakness. The French composite output index fell from 45.9 to 44.7, a 37-month low. The German index declined too, slipping from 50.5 to 49.6. A separate German business confidence index, run by Munich's Ifo institute, also fell from 109.9 in April to 106.9 in May, its lowest level since November.

The disappointing data, combined with the continuing uncertainty about Greece's future in the single currency, pushed the value of the euro to a two-year low of €1.2515 against the US dollar on the foreign exchanges.

The Italian Prime Minister, Mario Monti, renewed his call for joint guarantees of eurozone debt yesterday, despite the firm rejection of the idea by Germany at this week's informal European leaders' summit in Brussels.

"Italy is very much in favour of the creation of eurobonds when the time is right, and we do not expect it to be too far off," Mr Monti told a news conference in Rome.

Elsewhere in the Italian capital, the president of the European Central Bank, Mario Draghi, called on European leaders to take a "courageous" leap to preserve the single currency. "We are living a crucial moment in the history of the EU," he said. "We have reached a point in which the process of European integration needs a courageous leap of political imagination in order to survive."

Official data released last week showed that the eurozone as a whole narrowly escaped a return to recession, after the economy was flat over the first quarter. But Italy and Spain are shrinking again, and this week the OECD forecast that the eurozone will contract by 0.1 per cent in 2012.