Debt: Europe’s Business Sector Contracts

Eurozone Debt Crisis Worsens

Eurozone Debt Crisis Worsens

The private sector in the eurozone has decreased for the first time this September in two years, with a continuation of the sovereign debt crisis. According to a survey from Markit, the purchasing managers’ index (PMI) of activity, private sector business for the eurozone fell from 51.1 in August to 49.1 in September. Any reading under 50 on the PMI shows a contraction in the industry.

A Possible Break in Recovery

Chris Williamson, who produced the survey, commented on the shrinking industry, saying, “The recovery has finished, we are now contracting. Things will deteriorate further in the coming months.”

The seventeen countries that count the euro as their currency showed a drop in factory ouput for the second month in a row, and is likely to continue for an unknown period of time.

This news comes as the eurozone is facing a crisis, with many countries in large deficit struggling to ensure that they will not experience a default on their debts from international creditors. Greece is the country mainly in the news, but countries such as Portugal, Spain, Italy, France, and Ireland, have all contributed to the market woes over the summer. Some, such as Ireland have appeared to solve their problems and begin expansion, but others, such as Italy, have experienced further problems.

Struggling Economies

Italy’s credit rating had been downgraded earlier in this week, as the ratings agency Standard & Poor’s felt that it would have difficulty repaying many of its debts. Bailouts have occurred for Greece, the Irish Republic, and Portugal, with the Irish Republic using the money to help reduce the deficit, while Greece is requiring another bailout.

The country has had to meet demand from the International Monetary Fund, European Central Bank, and European Commission, in order to gain the second bailout, with heavy austerity measures put in place. The plans have been met with a large amount of protest by the country’s citizens.

Germany, Europe’s largest economy, experienced its slowest growth since 2009, with business growth not seen at such as slow rate since July of that year. The reading for Germany is just above that of the 50 needed for growth instead of contraction. Markit said, “The recovery in Germany’s private sector economy is teetering on the brink, with both manufacturing and services growth close to stagnation.” This is likely a reflection of the market volatility.

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