Eurozone slump moderates but German worries appear

LONDON - Reuters

Despite the improvement in French companies’ performances fuelled hopes, the sharp drop in German counterparts’ prompts worries. REUTERS photo

A sharp drop in German business activity overshadowed an easing downturn in France in April, surveys showed yesterday, raising concerns over a further economic contraction in the euro zone.

Markit’s flash euro zone services PMI, an early gauge of business activity each month, rose to 46.6 in April from 46.4 in March, below the 50 line that divides growth from contraction but matching the forecast of economists.

Survey compiler Markit cautioned against taking the rise as a clear sign the region’s recession has bottomed out, pointing to a surprise decline in German companies that form the backbone of the eurozone economy.

European Central Bank decision to be awaited

“Previously, we’ve seen Germany expand while other countries have contracted - notably Spain, Italy and France,” said Chris Williamson, chief economist at Markit.

“Now it seems those contractions are being accompanied by a downturn in the largest economy, Germany, and that will no doubt act as a drag on growth.”

There was some respite for French companies, which in March endured their worst month since the depths of the deep recession in 2009, and that helped the to support the latest wider eurozone PMI.

Williamson said officials at the European Central Bank(ECB) , which meets next week to decide monetary policy, may be relieved to see the eurozone PMIs at least did not signal a further deterioration this month. Comments by ECB policymakers stressing falling inflation and poor growth prospects in the eurozone suggest the ECB may be leaning towards a further cut in its main interest rate.