Signs of hope for euro zone, but new worry for Britain

Written by Reuters | London | Updated: Jan 5 2013, 09:28am hrs
Tentative signs the euro zone may have passed the worst of its downturn emerged in December but business surveys also suggested Britain's economy tipped back into contraction in the final months of 2012.

Friday's purchasing managers indexes, which measure the activity of thousands of companies worldwide, brought mixed news from Europe.

Activity in Britain's dominant services sector fell for the first time in two years and at a faster pace than predicted by any analyst polled by Reuters, while the speed of decline among French, Italian and Spanish firms slowed.

With Chinese growth showing evidence of revival, that leaves Europe as the world's economic slowcoach going into 2013. In particular, economists were surprised by news that the UK services PMI slipped to 48.9 in December from 50.2 last month, sagging below the 50 mark that divides from contraction for the first time in two years.

"The PMIs point to an economy that is contracting modestly," said Rob Wood, chief UK economist at Berenberg Bank. "The broader picture is that for some time the economy has been bouncing around the bottom ... and I think this is likely to stay with us for the next couple of quarters."

Survey compiler Markit said the figures suggest Britain's economy shrank 0.2% in the final quarter of 2012, a slightly bigger drop than most other private-sector forecasts. The euro zone composite PMI hit its highest levels since last March, rising to 47.2 in December from 46.5 in November, although it remained rooted below the 50 mark for an 11th month.

"I think (the euro zone PMIs) are showing a decisive bottoming-out of activity," said James Nixon, chief European economist at Societe Generale.

The decline eased among the services firms that make up the bulk of the euro zone's economy, ranging from banks to restaurants, but manufacturers endured an awful end to 2012. Survey compiler Markit warned that Friday's figures would probably fail to prevent the euro zone's recession deepening in the fourth quarter of last year, thanks to dismal figures in October and November.