Global Economy: Growth Slows in Private Sector, Spurs Recession Fears

Private sector contraction brings fears of recession

Private sector contraction brings fears of recession

Following a week that included both the International Monetary Fund and the World Bank warning of dire consequences should the world’s advanced economies not give themselves a boost, figures show private sector business is in sharp decline this month. The news brings fears of a slip back into recession for the entire global economy.

Contraction in Across the Globe

Surveys from Tuesday show that the euro zone service sector experienced contraction for the first time in two years, shocking experts. The European manufacturing sector, which has driven most of the recovery for the euro zone, also shrank for the second month in a row.

This data induces even more recession fears when coupled with data from China which shows their traditionally booming manufacturing sector experienced contraction for the third consecutive month. As the world’s second largest economy, many experts expected China to sustain growth and counter the faltering and slow-paced Western economies.

Head of global research at Lloyds Banking Group, Jeavon Lolay, said that the latest news is putting pressure on economies across the globe to pick up the pace of recovery.

“There is a global slowdown … the Fed acted yesterday, the Bank of England talked about the potential to do more quantitative easing. There is no doubt the risks of a global recession have grown,” said Lolay.

Unforeseen setbacks

The sudden decline in private sector activity on this scale was largely unpredicted by experts.

The Flash Markit Eurozone Service Purchasing Managers’ Index (PMI) sank to 49.1 in September from last month’s 51.5. The forecasted number was 51.0, way above the actual figure. In a Reuters poll of 37 economists, not one predicted contraction in the service industry.

Any number below 50 on the PMI indicates contraction, and September’s 49.1 figure is the first figure that shows this happening to services activity since August 2009.

In the manufacturing sector, the European factory index dropped to 48.4, its lowest in two years, though a fall to 48.5 was expected.

Martin Enlund of Handelsbanken said of these figures, “”The numbers are still consistent with some GDP growth, so it does not signal recession just yet.”

“That said, we are seeing a slow-motion train crash in the euro area, where credit contraction risks leading to a new recession by Christmas unless governments face up to the task swiftly and forcefully,” added Enlund.


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