Eurozone said still caught in a recession

Investors push ECB for action to stimulate growth

The shrinking of Germany’s economy may hurt Chancellor Angela Merkel’s party in upcoming fall elections.
Fabrizio Bensch/Reuters
The shrinking of Germany’s economy may hurt Chancellor Angela Merkel’s party in upcoming fall elections.

The beleaguered eurozone remains stuck in recession, according to data published Tuesday, increasing pressure on the European Central Bank to find a way to stimulate growth soon.

Stock and bond markets rallied in the United States and Europe on hopes that the central bank would cut the benchmark interest rate for euro countries as early as next week. On Wall Street, the Standard & Poor’s 500 index and other major barometers all closed with gains of more than 1 percent, while the 10-year Treasury bond yield touched 1.645 percent, the lowest intraday level since Dec. 12.

But outside of trading rooms, the European data were not likely to inspire any joy.


Besides pointing to continued decline in the eurozone economy, the survey of corporate purchasing managers by the research firm Markit showed that Germany could be slipping into recession.

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Germany has served as the main counterweight to economic malaise elsewhere in the eurozone, and a prolonged slowdown there could delay a recovery on the whole continent.

The Flash Germany Composite Output index issued by Markit fell to 48.8 in April from 50.6 in March, a six-month low. A reading below 50 is considered a sign the economy is likely to contract. For the eurozone as a whole, the corresponding index was unchanged at 46.5, confirming that the region remains in a rut.

The German economy shrank 0.6 percent in the last three months of 2012. Another negative quarter would mean the country was in recession and present a problem for Chancellor Angela Merkel as her party campaigns to remain in power in elections this autumn.

Meanwhile, the stubborn slowdown in the eurozone is likely to further inflame the debate about how much more austerity troubled countries in Europe can take. Many political leaders are arguing for a greater emphasis on growth.


In Europe’s most troubled countries, there was little sign of a turnaround in growth. Economic activity in Spain declined 0.5 percent in the first three months of this year, the Bank of Spain said in a preliminary estimate Tuesday.

Still, markets cheered the pessimistic survey results because of expectations that they would prompt the ECB to cut interest rates or take other action when its policy making board meets May 2.

On Tuesday, the central bank of Hungary, which is not among the 17 nations in the eurozone, cut its main interest rate to 4.75 percent from 5 percent. It was the bank’s ninth rate cut in as many months.

The benchmark French stock market index, the CAC 40, finished the day 3.6 percent higher, while the interest rate on France’s 10-year sovereign bond hit a record low of 1.706 percent. Other major European stock indexes posted gains of more than 2 percent while bond yields fell.

For France, the Markit output index rose to 44.2 in April from 41.9 in March, indicating that the pace of decline was slowing in the eurozone’s largest economy after Germany’s. But that tidbit of good news was clouded by a drop in the separate Insee indicator of the French business climate.


The decline in optimism among German purchasing managers might be the result of a deceleration 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. China has helped to compensate for weak demand in the rest of Europe.

Even if Germany is merely treading water, that is still bad news for the rest of the eurozone. The 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.

Members of the governing council of the ECB have hinted recently that an interest rate cut could be nigh.

Mario Draghi, the ECB president, said earlier this month that policy makers were ‘‘ready to act.’’

The new data raised expectations that a cut in the benchmark interest rate, already at a record low 0.75 percent, could come when the central bank meets May 2.

It is also possible the ECB could look for other ways to ease a credit crunch in countries like Italy and Spain. Draghi has often complained that low official interest rates have not benefited companies in the troubled countries because banks remain too reluctant to lend.

“It is no longer a matter of if but when the ECB will be cutting rates,’’ analysts at Nomura said in a note to clients Tuesday.