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Data Points to Slowdown in Germany Markets Jump on Hopes for European Action
(about 1 hour later)
FRANKFURT — The German economy could be slipping back into recession, depriving the euro zone of its main counterweight to economic malaise elsewhere, according to a closely watched survey of business sentiment published Tuesday. European and American stock markets rose sharply and bond yields fell on Tuesday on investor expectations that new recessionary data out of the euro zone would force the European Central Bank to cut interest rates next week.
The data, which also confirmed that the rest of the euro zone remains stuck in recession, raises pressure on the European Central Bank to cut interest rates or take other action when it meets next week. Recession in Germany would also be a problem for Chancellor Angela Merkel as her party campaigns to remain in power in elections this autumn. The French stock market index rose more than 3 percent in afternoon trading, while the interest rate on its 10-year sovereign bond hit a record low. German stocks and bonds mirrored movements in France, and American stocks were up about 1 percent in morning trading.
The Flash Germany Composite Output index, issued by Markit, a research firm, fell to 48.8 in April from 50.6 in March, a six-month low. A reading below 50 is considered a sign that the economy is likely to contract. For the euro zone as a whole, the corresponding index was unchanged at 46.5, confirming that the region remains in a rut. A closely watched survey of business sentiment released on Tuesday showed that the German economy could be slipping back into recession, depriving the euro zone of its main counterweight to economic malaise elsewhere.
In addition, economic activity in Spain declined 0.5 percent in the first three months of 2013, the Bank of Spain said Tuesday, suggesting that one of the euro zone’s most troubled economies was unlikely to start growing again until next year. In France, the Markit output index rose to 44.2 in April from 41.9 in March, a tidbit of good news indicating that the pace of decline was slowing in the euro zone’s largest economy after Germany’s. The data, which also confirmed that the rest of the euro zone remained stuck in recession, raised pressure on the European Central Bank to cut interest rates or take other action at its meeting next week. Already on Tuesday, the Hungarian Central Bank brought its rates down a notch to 4.75 percent
A recession in Germany would also be a problem for Chancellor Angela Merkel as her party campaigns to remain in power in elections this autumn.
The Flash Germany composite output index, issued by the research firm Markit, fell to 48.8 points in April from 50.6 in March, a six-month low. A reading below 50 is considered a sign that the economy is likely to contract. For the euro zone as a whole, the corresponding index was unchanged at 46.5, confirming that the region remained in a rut.
In addition, economic activity in Spain declined 0.5 percent in the first three months of 2013, the Bank of Spain said on Tuesday, suggesting that one of the euro zone’s most troubled economies was unlikely to start growing again until next year. In France, the Markit output index rose to 44.2 in April from 41.9 in March, a tidbit of good news indicating that the pace of decline was slowing in the euro zone’s second-largest economy after Germany’s.
In New York, the Standard & Poor’s 500-stock index and the Dow Jones industrial average each leapt 0.9 percent in morning trading. The Nasdaq composite index added 1 percent.
Analysts said the decline in optimism among German managers might be the result of a slowdown in the pace of growth in China, which in recent years has become one of the most important markets for German products like automobiles and machinery.Analysts said the decline in optimism among German managers might be the result of a slowdown in the pace of growth in China, which in recent years has become one of the most important markets for German products like automobiles and machinery.
In general, German companies may be suffering from uncertainty about which way the major economies in the world are going, said Ralph Wiechers, chief economist of the German Engineering Federation, an industry group in Frankfurt that represents makers of machine tools and high-priced industrial goods. In general, German companies may be suffering as a result of uncertainty about which way the major economies in the world are going, said Ralph Wiechers, chief economist of the German Engineering Federation, an industry group in Frankfurt that represents makers of machine tools and high-priced industrial goods.
“The mood is cautious, neither euphoric nor skeptical,” Mr. Wiechers said. “People are waiting to see.”“The mood is cautious, neither euphoric nor skeptical,” Mr. Wiechers said. “People are waiting to see.”
Johann Sailer, managing director and owner of Geda Dechentreiter, a German maker of elevators used on construction sites or drilling rigs, said that demand in the construction industry was still good but that the pace of growth might have slowed for some companies. Johann Sailer, managing director and owner of Geda Dechentreiter, a German maker of elevators used on construction sites or drilling rigs, said demand in the construction industry was still good but that the pace of growth might have slowed for some companies.
“They have a lot of work,” he said of companies in the building industry. “It’s moving a little bit sideways at the moment, but I don’t see any dramatic slowdown.”“They have a lot of work,” he said of companies in the building industry. “It’s moving a little bit sideways at the moment, but I don’t see any dramatic slowdown.”
Even if Germany is merely treading water, that is still bad news for the rest of the euro zone. The steadfast German economy has played a crucial role in compensating for the swath of economic woe that runs from Cyprus to Ireland by way of Greece, Italy, Spain and Portugal.Even if Germany is merely treading water, that is still bad news for the rest of the euro zone. The steadfast German economy has played a crucial role in compensating for the swath of economic woe that runs from Cyprus to Ireland by way of Greece, Italy, Spain and Portugal.
“The German economy may not be as strong as we thought,” Marie Diron, a senior economic adviser to the consulting firm Ernst & Young, said by e-mail.“The German economy may not be as strong as we thought,” Marie Diron, a senior economic adviser to the consulting firm Ernst & Young, said by e-mail.