Policymakers must seek to revive economic growth, says economist

Eurozone services and manufacturing output contracted more than economists forecast in March.

A eurozone composite index based on a survey of purchasing managers in both industries dropped to 48.7 from 49.3 in February, London-based Markit Economics said in an initial estimate on Thursday. Economists forecast a gain to 49.6, according to the median of 21 estimates in a Bloomberg News survey. A reading below 50 indicates contraction.

The drop in the composite index "is clearly a disappointment following the brief return to growth seen in January, and suggests that policymakers will need to seek ways to revive economic growth across the region again," Chris Williamson, chief economist at Markit, said in the report.

Europe's economy is regaining some strength after shrinking in the fourth quarter as reviving global demand helps soften the impact of budget cuts across the region. Eurozone economic confidence improved in February, German investor sentiment surged to a 21-month high this month and the Stoxx Europe 600 Index has gained 15 percent since mid-December.

"The exports side is doing rather well, but indicators point to another economic contraction in the first quarter," said Christoph Weil, a senior economist at Commerzbank AG in Frankfurt. "The debt crisis is far from over and there are still a lot of risks. The composite index may only gradually rise to just slightly above 50 in the coming months."

A gauge of eurozone manufacturing fell to 47.7 in March from 49 in February, Markit said. A measure of services declined to 48.7 from 48.8.

Weaker contraction

Adding to signs of stabilization after a contraction of 0.3 percent in the fourth quarter, eurozone industrial output rebounded in January from a slump in the previous month. In Germany, business confidence increased for a fourth month in February and European investors grew more confident in March.

Stephane Deo, an economist at UBS AG in London, said on March 16 that "some things have not turned out quite as negatively as feared a couple of quarters back". He now expects the eurozone economy to shrink 0.4 percent this year instead of a previously projected 0.7 percent, before expanding 1.1 percent in 2013.

Hugo Boss AG, the German luxury clothing maker controlled by buyout firm Permira Advisers, said on March 14 that operating profit may rise by more than 10 percent this year, helped by demand in Asian markets. Bayerische Motoren Werke AG, the world's largest maker of luxury vehicles, said on March 13 it plans to surpass last year's record profit in 2012.

'Promising start'

"We are off to a promising start" with car sales in the first two months of the year at an all-time high," BMW Chief Executive Officer Norbert Reithofer said. Still, "markets and consumers alike remain uneasy about the significant public debt and the euro crisis", he said.

European efforts to tackle the debt crisis advanced over the past month, as Greece reached a debt-swap deal with its private creditors and officials approved a second bailout.

The European Central Bank, which supported the economy with measures including 1 trillion euros ($1.3 trillion) in three-year loans to banks, on March 8 kept its benchmark interest rate at a record low of 1 percent.

The Frankfurt-based central bank the same day raised its inflation forecasts for this year and next and said it expects the economy to shrink about 0.1 percent in 2012. It had previously projected an expansion of 0.3 percent.

ECB council member Erkki Liikanen said in an interview on March 15 that the central bank "has done its part, the governments must do theirs".

"We have been able to produce, from a market viewpoint, a decisive change in market sentiment," he said. "For the fiscal side, for the deficits, for the long-term fiscal debt, it's in the hands of governments and that belongs to them - and only them."