Page last updated at 11:48 GMT, Monday, 3 November 2008

Eurozone is on verge of recession

Steel factory in Marseille, France
Factories across the eurozone are reducing their output

The eurozone is on the brink of recession with economic growth falling 0.2% in the second quarter, the European Commission has announced.

A Commission statement warned: "In 2009, the EU economy is expected to grind to a standstill."

The slowdown will mark the eurozone's first recession since the currency's inception in 1999.

Figures also announced on Monday show that manufacturing in the zone fell in October to its lowest level since 1997.

The Commission also forecast further falls of 0.1% in the third and fourth quarters of this year, and overall growth of just 0.1% next year and 0.9% in 2010.

Manufacturing falls

Output, new orders, new export orders, and purchases - all fell to their lowest level since the Purchasing Managers' Index, compiled by Markit Economics, was introduced more than 11 years ago.

European companies also cut jobs at the fastest rate since January 2002.

October is the fifth consecutive month in which the index has recorded a contraction in eurozone manufacturing.

All countries within the region saw new orders and manufacturing output fall, with Germany, France, Italy, Spain, Austria and Ireland experiencing record falls.

The headline index registered a score of 41.1, a record low. Any score below 50 represents a contraction in the manufacturing sector.

The employment index fell to 44.4, down from 47 in September.

Cancelled orders

New orders fell as both consumers and businesses cut back on spending due to the financial crisis and fears of a painful recession, leading some to cancel or postpone orders.

The downturn was felt across all sectors recorded in the index - consumer, intermediate and investment goods.

Stocks of finished goods awaiting sale also reached a record high in the survey.

The outlook for manufacturing remains bleak, said Chris Williamson, chief economist at Markit Economics.

"With stocks of unsold goods rising at a record pace due to weak sales, further cuts to output and employment are likely in the coming months," he said.

There was some good news for consumers. As a direct result of slowing demand and the fall in the price of commodities - mainly the price of oil - inflation in the sector fell to its lowest level in three years.

"The startling speed of the downturn has been matched by an accompanying rapid easing in inflationary pressures," said Mr Williamson.



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