In Euro Zone, Economy Shows Pullback

The euro-zone economy contracted in the 2nd-Q, final data confirmed, even as new signs emerged 3rd-Q GDP can also be negative, potentially pushing the 15-country bloc into a technical recession. A similar retreat in the U.K. services sector suggested it, too, could see a decline in output in the 3rd-Q. A recession there is deemed possible before year end. In the euro zone, sluggish private consumption and business investment caused GDP to contract for the first time since 1995. Statistics agency Eurostat confirmed that the measure fell 0.2% in the 2nd-Q after rising 0.7% in the 1st. Soaring commodity prices, falling home values and tighter credit conditions a year after the subprime crisis swept in from the U.S. have crippled European domestic spending at a time when exports are withering amid a global slowdown. In an early look at the 3rd-Q, the purchasing managers index for the euro zone's services sector, that collates data from about 5,000 companies, read 48.5 in August after July's 48.3, data from research group Markit Economics showed recently. A reading below 50 signals that business activity in the sector is shrinking, while a reading above 50 signals growth. Eurostat also said higher prices for food and fuel prompted euro-zone sales volumes to fall 0.4% in July from June and drop 2.8% from last July, below expectations of a 0.2% fall for the month and a 2.1% decline from a year before. The European Central Bank and the Bank of England will conclude monetary-policy meetings. But Analysts widely agree neither central bank is likely to change interest rates, since inflation is still running well above targeted levels. In the UK, the purchasing managers' survey showed shrinkage in services business for the fourth month in a row. The survey's headline measure came in at 49.2 in August after 47.4 in July. The recent data "contain some brighter spots, but remain consistent with the UK economy hitting recession by the end of '08," an economist at Lehman Brothers said. Britain's GDP was flat in the 2nd-Q. British consumer confidence is also in full retreat. A measure of consumer sentiment complied by UK lender Nationwide showed U.K. consumer confidence stayed at the weakest level since the survey began in May 2004.