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Europe on edge of recession, figures show

By David Mchugh

Associated Press

Published: Thursday, Sept. 22 2011 10:24 p.m. MDT

A man walks as vehicles drive in front of the Greek Parliament, on Wednesday, Sept. 21, 2011. Greece will suspend more civil servants than originally planned and impose new pension cuts as part of more austerity measures, the government said Wednesday, as it tried to persuade international creditors to continue bailout payments needed to avoid a chaotic default. (AP Photo/Petros Giannakouris)

Associated Press

FRANKFURT, Germany — Downbeat economic indicators stoked fears Thursday that Europe is on the edge of recession as it grapples with a crippling debt crisis.

The European Commission's index of consumer optimism from the European Commission fell to a two-year low of minus 18.5 in September in the 17 countries that use the euro. Industrial orders — key for Europe's manufacturing driven economy — slid 2.1 percent in July, according to Eurostat, the EU's statistics office.

European officials fear the constant bad news about their government debt crisis is weighing on business and consumer decision-making and hurting the wider economy. Growth came in at a disappointing 0.2 percent for April through June, and economists have been busy lowering their forecasts.

Slower growth could complicate the eurozone's halting effort to contain a crisis over too much government debt in some countries. Greece, Ireland and Portugal have needed bailouts to pay their debts and officials are trying to keep the crisis from dragging down Italy and Spain as well.

Lower growth means less tax revenue and more pressure on government finances, both in the stricken countries and the creditor countries such as Germany that are trying to bail them out.

Stocks sagged in response to the new numbers. France's CAC-40 closed down 5.3 percent, Germany's blue-chip DAX index slid 5 percent and Britain's FTSE was off 4.7 percent.

Market anxieties have grown as officials from the European Union's executive Commission have pushed Greece for more budget cuts to qualify for the next payout of bailout money — without which it could well default on its debts next month. A default could lead to losses at banks that hold government bonds, choking credit to the wider economy — one reason European officials say they are determined to prevent one.

"The uncertainty arising from the escalating sovereign debt crisis has reached a threatening level," economist Christoph Weil wrote in a note to investors.

"Leading indicators are dropping like a stone," he added referring to those statistics that suggest where the economy is going in coming months.

Weil said the economy might barely grow in the third quarter with contraction more likely by the last three months of the year.

There was some good news when Ireland reported its economy grew 1.6 percent in the second quarter, an unexpectedly strong number, but one that reflects conditions months ago.

Otherwise, the downbeat numbers kept coming Thursday, beginning with a closely watched survey from financial information company Markit that indicated a recession could be on the way.

Markit's monthly purchasing managers index — a gauge of business activity — fell to 49.2 in September, its lowest level since July 2009, from 50.7 the previous month.

Economists at HSBC said the number "is consistent with stagnation" in the third quarter as "the industrial sector moves closer to recession."

The European Central Bank has shelved a series of interest rate increases after two quarter point increases in April and July took its key rate up to 1.5 percent. Economists think that if the bad news keeps piling up, the bank may have to reverse course and bring rates down again.

"The ECB has already signaled that it will not make any further rate hikes in the coming months," said economist Weil. "The hurdle for a rate cut, increasingly expected by the market, is high in our opinion, although the likelihood of it being taken grows with every further decline of sentiment indicators."

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