Euro Zone Shows Signs of Flattening Economy

Business activity in the euro currency zone is falling sharply, according to a closely watched survey, adding to evidence that Europe's economy is flatlining. The Purchasing Managers Index for the euro area, which measures output in the private sector, fell to 47.0 in Sept. from 48.2 in August, hitting the lowest level since late 2001. Slumping export orders and slowing activity in Germany dragged down the survey. The survey data imply the 15-nation, $13 T euro-zone economy, 2nd in size to the U.S., has barely grown in the 3rd-Q and might even contract, economists said. Weak new orders mean chances of a recovery in European economic growth in the 4th-Q also are fading. The PMI for Germany, Europe's biggest economy, fell to 48.6 in Sept. from 50.5 in August, reaching the lowest level since July '03, when Germany was mired in a long economic downturn. Germany's economy was growing relatively strongly until this spring, while other such as Italy and Spain were already faltering. The recent Ifo survey of German business confidence should offer another sign of whether the recent falls in oil and other commodity prices are offering companies respite, or financial-market turmoil and weaker global demand for Europe's goods matter more, as the PMI survey suggests. For four months now, the euro-zone PMI survey has been below 50, indicating private-sector business activity is falling. That can indicate the euro-zone economy is on its way to an overall contraction in the 3rd-Q quarter, following the 0.2% decline in GDP in the 2nd-Q. However, overall economic growth also depends on Europe's large public sector, which isn't covered in the PMI survey. European Central Bank officials predicted a brief economic downturn, centered on the 2nd and 3rd-Qs '08. But growing number of private-sector forecasters believe the ECB's being too optimistic. ECB staff predict economic growth of about 1.4% this year and about 1.2% next.