Europe’s services and manufacturing industries slowed more than economists forecast in December, as smaller euro members failed to keep up with Germany’s export-led expansion. A composite index based on a survey of euro-area purchasing managers in both industries fell to 55 from 55.5 in November, the lowest in two months, London-based Markit Economics said today. A figure above 50 indicates expansion and economists had expected a reading of 55.3, according to the median of 17 estimates in a Bloomberg News survey. The measure of German manufacturing surged to 60.9, the highest since July. Germany, Europe’s largest economy, has powered the euro area’s expansion, led by export orders while nations on the region’s periphery struggle to emerge from recession as the sovereign debt crisis pushes up their borrowing costs. With governments across the region stepping up austerity measures to tackle deficits, the European Commission last month forecast that growth will weaken into 2011. “It’s a mixed picture for the euro region, some economies are really gathering pace and that’s related to China,” said Martin van Vliet, an economist at ING Group in Amsterdam. “The overall story is there’s huge financial turmoil in the euro region and that’s usually a bad sign for the economic outlook in the euro region overall.” Manufacturing Gauge The euro region’s manufacturing gauge rose to 56.8 from 55.3 in the previous month, Markit said today. The services indicator fell to 53.7 from 55.4. The measure of French manufacturing fell to 56.3 from 57.9, Markit said. Outside France and Germany growth “slowed to near-stagnation, registering the weakest performance since November 2009,” the company said. Consumer-price inflation held steady at 1.9 percent in November, the European Union statistics office in Luxembourg said today. Growth in labor costs slowed to 0.8 percent in the third quarter from a year ago, from 1.6 percent in the second quarter, a separate report showed. The euro strengthened 0.2 percent to $1.3243 at 10:00 a.m. in London. The gap between German and Spanish bond yields widened to 247 basis points from 242 basis points yesterday and the Portuguese spread increased to 343 basis points from 340 basis points yesterday. Spending Cuts Euro-area growth may weaken to about 1.4 percent in 2011 from around 1.6 percent in 2010, the European Central Bank said on Dec. 2. Exports may continue to drive growth in 2011 as government spending cuts weigh on consumer demand, the Frankfurt-based central bank said. Volksagen AG’s Audi luxury car unit expects China to replace Germany as its biggest maker in 2011 “at the latest,” Chief Financial Officer Axel Strotbek said on Dec. 14. Peter Bauer, chief executive officer of Infineon Technologies AG, Europe’s second-largest chipmaker, said on Dec. 9 that the sales target for the current fiscal year may be “conservative.” So far, the economy is showing few signs of cooling. European confidence in the economic outlook improved for a sixth straight month in November, exports increased in September and German investors became more optimistic in December. Countries from Spain to Ireland have already stepped up efforts to push down their budget deficits and help restore investor confidence, clouding the growth outlook. ECB President Jean-Claude Trichet said on Dec. 10 that while the region’s recovery remains “on track,” it’s “extremely important” for governments to stick to their austerity measures. Companies may struggle to maintain their sales growth. Klaus Engel, CEO of German chemical maker Evonik Industries AG, said on Dec. 14 that growth “prospects are limited” in industrial countries. “Next year, high public debt will force many countries to cut spending,” Engel said. “Only then will it be possible to say how strong the upswing forces really are.” To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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