Global services weaken as Europe slides into recession

Recession Risk

Euro-area governments may find it more difficult to plug their budget gaps with at least five euro nations already in recession and the fiscal crisis spreading from the periphery to core countries. In Germany, business confidence unexpectedly declined to the lowest in more than 2 1/2 years in September. French consumers also grew more pessimistic last month.

Joachim Fels, chief economist at Morgan Stanley, said the euro area’s economic gloom will deepen.

“First of all there’s still fiscal tightening going on,” Fels told Tom Keene and Sara Eisen on Bloomberg Television’s “Surveillance” on Oct. 1. “We have a global economy that has entered what I call the twilight zone -- that’s the fuzzy area between sustained expansion and renewed recession. The global data are still weakening. There are domestic and global reasons why the economy in Europe is weakening further.”

Separately today, euro-area retail sales barely grew in August, rising 0.1 percent from the previous month, the European Union’s statistics office said. Sales dropped 1.3 percent from a year earlier. the report showed.

Asian Outlook

With consumers holding back spending and global demand faltering, European companies may struggle to maintain their sales growth. Daimler AG, the world’s third-largest luxury- vehicle maker, said on Sept. 20 that earnings at its car division will drop in 2012. Royal DSM NV Chief Executive Officer Feike Sijbesma said last month that he remains cautious about the near-term economic outlook.

The ADB forecast that Asia excluding Japan will expand 6.1 percent this year, the slowest pace since 2009. The growth projection for developing Asia this year compares with a July estimate of 6.6 percent and an April prediction of 6.9 percent.

“The possibility of a shock emanating from the unresolved euro-area sovereign debt crisis or a sharp fiscal contraction in the U.S. pose the biggest downside risks to the economy,” the ADB said. “Fortunately, most developing Asian economies have room to counteract such shocks with fiscal and monetary policy.”

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