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Dismal figures stoke fears of further eurozone downturn

Slumping private sector output, rising debt, and general malaise foreshadow further decline.

A fresh batch of eurozone data has reinforced fears that the economic downturn may be intensifying rather than easing.

Confidence in the eurozone sank deeper today as the release of dismal PMI figures reflected a loss of momentum in the bloc’s private sector activity, reversing signs of progress in September.

Markit’s Compositive Purchasing Mangers’ Index (PMI), which uses data from around 5,000 business within the 17-nation bloc, serves as a barometer for manufacturing performance and is seen as a reliable growth indicator. Figures below 50 represent contraction, with those above 50 indicating expansion.

Eurozone PMI figures dropped to a 40-month low of 45.8 points in October, down from 46.1 in September, its sharpest decline since June 2009.

This was driven by weaker-than-expected German PMI data, which contracted to 45.7 points from September’s index of 47.4 – its sixth month below the break-even mark of 50. French figures stood at 43.2 points, marking eight straight months of contraction in French manufacturing, despite a 1.6 point rebound from September.

In addition to weak domestic markets, subdued overseas demand, most notably from Asia and to a lesser extent the US, dragged down European manufacturing output.

“It’s very disappointing, it’s a depressing scenario as things are getting worse”, lamented Chris Williamson, chief economist at Markit.

“We are more down than the official data. The PMIs are running at levels historically consistent with GDP falling at about 0.6 per cent”, he added.

The gloomy outlook was confirmed by significant drops in Munich’s Ifo Institute’s business climate index, with figures dropping from 101.4 in September to 100.00 – the lowest reading since February 2010.

Also highlighting the decline, the composite employment index stood at a contractionary level of 46.4 points as firms sought to balance their books with lay offs. US automotive titan Ford axed almost 10,000 jobs after plant closures in Belgium, with Peugeot cutting roughly 6,500 jobs in France earlier this year.

“Businesses are very much in cost-cutting, retrenchment mode, battening down the hatches because they don’t know what the outlook is”, said Williamson.

Official data released earlier in October revealed an 11.4 per cent unemployment rate in August, the eurozone’s highest level since its inception in 1999.

Markets responded negatively to the dismal PMI data, with DAX in Germany down 0.4 per cent, CAC in Paris down 0.2 per cent, and FTSE 100 in London down 0.1 per cent.

The slump in eurozone manufacturing comes amid rising eurozone sovereign debt, which grew from 88.2 per cent in the first quarter to 90 per cent of GDP in the 2nd quarter, according to Eurostat.

Unsurprisingly, Greece was the most indebted state, with public debt worth 150.3 per cent of its GDP, up from 136.9 per cent in the first quarter. Italy and Portugal also clocked up high debt levels, with figures of 126.1 per cent and 117.5 per cent respectively.

The eurozone's lowest sovereign debt was claimed by Estonia, with debt levels of just 7.3 per cent of GDP.

Alex Ward is a London-based freelance journalist who has previously worked for the Times & the Press Association. Twitter: @alexward3000

Photo: Dan Kitwood/Getty Images
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Conservative disunity is not all good news for Labour

The Tory leadership election could squeeze Labour out of the conversation, just like Blair and Brown did to the Tories.

The first test of opposition politics is relevance. Other key yardsticks - political plausibility, economic credibility, setting the agenda and developing a governing vision - all matter greatly. But making yourself a central part of the relentless cycle of daily politics, the terms of which are generally set by the governing party, is the first hurdle. It matters not whether you sign up to new politics or old: be relevant or wither. 

The issue of relevance is becoming a pressing issue for Labour. Take George Osborne’s favoured issue of the so-called national living wage.  Leave to one side the rights, wrongs and nuances of the policy and just consider the basic political dynamic it creates.  Osborne has, quite deliberately, set up a rolling five year argument over a steadily rising wage floor. On one side, is the Chancellor arguing that his policy is the right thing for Britain’s ranks of low paid workers. Pitted against him are ranks of chief executives of low-paying big business. With each impending hike they will holler at Osborne to go no further and the media will happily amplify the row. In response the Chancellor will quietly smile.

Sure, on occasions this will be uncomfortable stance for Mr Osborne (and if the economy takes a downward turn then his pledge will become incredible; there are always big risks with bold strokes).  Yet the dominant argument between the Conservatives and big business leaves Labour largely voiceless on an issue which for generations it has viewed as its own.

We may well see a similar dynamic in relation to the new national infrastructure commission – another idea that Osborne has plundered form Labour’s 2015 manifesto. It’s far too early to say what will come of its work looking at proposals for major new transport and energy projects (though those asserting it will just be a talking shop would do well not to under-estimate Andrew Adonis, its first Chair). But there is one thing we can already be confident about: the waves of argument it will generate between Osborne’s activist commissioners and various voices of conservatism. Every big infrastructure proposal will have noisy opponents, many residing on the right of British politics. On the issue of the future of the nation’s infrastructure – another touchstone theme for Labour – the opposition may struggle to get heard amid the din.

Or take the different and, for the government, highly exposing issue of cuts to tax credits. Here the emerging shape of the debate is between Osborne on one side and the Sun, Boris Johnson, various independent minded Conservative voices and economic think-tanks on the other. Labour will, of course, repeatedly and passionately condemn these cuts. But so have plenty of others and, for now at least, they are more colourful or credible (or both).  

The risk for the opposition is that a new rhythm of politics is established. Where the ideological undercurrent of the government steers it too far right, other voices not least those within the Conservative family - moderates and free-spirits emboldened by Labour’s current weakness; those with an eye on the forthcoming Tory leadership contest – get reported.  Where Osborne consciously decides to tack to the centre, the resulting rows will be between him and the generally Conservative supporting interests he upsets. Meanwhile, Labour is left struggling for air.

None of which is to say there are no paths back to relevance. There are all sorts of charges against the current government that, on the right issues, could be deployed - incompetence, complacency, inequity – by an effective opposition.  Nor is the elixir of relevance for a new opposition hard to divine: a distinct but plausible critique, forensic and timely research, and a credible and clear voice to deliver the message. But as yet we haven’t heard much of it.

Even in the best of times being in opposition is an enervating existence. Those out of power rarely get to set the terms of trade, even if they often like to tell themselves they can. Under Ed Miliband Labour had to strain – sometimes taking big risks - to establish its relevance in a novel era defined by the shifting dynamics of coalition politics. This time around Jeremy Corbyn’s Labour is up against a Chancellor willing to take risks and pick big fights: often with traditional Tory foes such as welfare claimants; but sometimes with people on his own side.  It’s also a new and challenging context. And one which Labour urgently needs to come to terms with.   

Gavin Kelly is chief executive of the Resolution Foundation