Greek, French economy fears

Countries still mired in contraction – Markit

WARNING lights are flashing over the Greek and French economies, analysts said yesterday, after a closely watched manufacturing survey showed the countries remained mired in contraction last month.

Turmoil in Greece, and fears the country could default on its debt and be forced out of the eurozone, pushed Greek activity to a 22-month low, according to Markit’s latest manufacturing barometer.

The figures also suggested that the European Central Bank’s ß1.1- trillion (R14.8-trillion) bond-buying programme, which has helped to weaken the euro, has so far failed to lift France out of its chronic malaise.

French manufacturing activity contracted for the 11th consecutive month last month, with the rate of decline the fastest yet this year. Markit also said employment levels fell for the 13th month last month.

“The French manufacturing sector remains locked in reverse gear,” Markit economist Jack Kennedy said.

“Production levels were cut at an accelerated rate amid a steeper decline in new orders.

“This was despite a further fall in prices charged and the recent weakening of the euro, underlining the competitive challenge facing firms.” Markit’s French manufacturing purchasing managers’ index (PMI) fell to 48 last month, from 48.8 in March. This was lower than a flash estimate of 48.4 and well below the 50 level that divides growth from contraction. Greece’s PMI contracted to 46.5, from 48.9.

The weaker-than-expected readings dragged down the rest of the eurozone, which expanded at a slightly slower pace last month. Markit’s final eurozone manufacturing PMI stood at 52 last month from 52.2 in March.

The pace of activity in Germany, Europe’s biggest economy, also moderated.

Markit’s chief economist, Chris Williamson, said: “Warning lights are flashing particularly brightly over France and Greece, both of which saw accelerating rates of decline at the start of the second quarter.

“Weaker rates of growth in Germany and Ireland are also cause for concern.”

However, Markit still expected the bloc to grow by 0.4% in the first quarter of this year.

It would be a faster pace of expansion than in the UK, which grew by 0.3% in the first quarter compared with the final three months of last year, and the US, which grew by 0.05% over the same period.

“The ECB asset purchase programme is still in its infancy, and given the concerns over Greece it’s not surprising that the road to recovery will be bumpy,” he said. IHS Global Insight economist Howard Archer said the outlook for the eurozone remained positive.

“The modest slowdown in eurozone manufacturing expansion in April is a little disappointing but it is far from disastrous to recovery hopes.

“April’s dip in the PMI was modest and it followed a marked increase in March.

“While oil prices and the euro have come off their recent lows, they are still at levels that should be very helpful to eurozone growth, while further support should come from major ECB stimulus and muchreduced fiscal headwinds.”

Talks between Greece and its international creditors will continue this week, as the country scrambles to agree on a deal to unlock bailout funds.

The country, already blighted by 25% unemployment and a debt pile that equates to 170% of gross domestic product, is due to pay the International Monetary Fund ß200- million (R2.68-billion) this week, and ß750- million (R10.08-billion) later this month.

If bailout talks collapse, Greece could be facing a eurozone exit.

Meanwhile, China’s factories suffered their fastest drop in activity in a year last month as new orders shrank.

The HSBC-Markit index reflected a deterioration in domestic demand, as export orders showed tentative signs of improvement.