Euro Zone Output Contracted Despite Forecasts

Euro zone services and manufacturing output shrunk, despite economists predicting an increase.

According to Markit Economics, a euro zone composite index based on a survey of purchasing managers dropped to 48.7 in march from 49.3 in February. The forecast was that economic output would rise to 49.6.

The region’s manufacturing output shrunk to 47.7 in March from 49 in February, and services declined to 48.7 from 48.8.

The region’s output contracted on the basis of declining domestic demand. A reading below 50 indicates a contraction, showing that the euro zone’s economy is sliding into recession.

Markit said that the downturn is only very mild at the moment, with the PMI signaling a drop in GDP of approximately 0.1 percent to 0.2 percent. However, a reported upturn in business confidence in the service sector provides hope that conditions may improve again later in the year.

Earlier this month, the European Central Bank raised its inflation forecasts for this year and said it expects the economy to shrink about 0.1 percent in 2012. It had previously projected an expansion of 0.3 percent.

The drop in the composite index followed the brief return to growth in January. This brings into focus the urgent need for the euro zone’s policy makers to identify ways to revive economic growth across the region.

Source: Bloomberg

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Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.