Euro zone in decline

All major euro zone economies are in various states of decline.

Euro. Picture: AFP

NEW YORK - All of the euro zone's major economies are now in various states of decline, according to business surveys that heaped more pressure on Europe's leaders to stop the region becoming the centre of a new global crisis.

The latest purchasing managers indexes (PMIs), published on Tuesday, underlined why finance chiefs from the Group of Seven leading industrialized powers held emergency talks on the euro zone's debt crisis.

The euro zone private sector economy shrank in May at the fastest pace in nearly three years, according to the PMIs, which suggested even Germany is no longer immune to the tremors emanating from the debts of Greece and Spain.

The euro zone set an overwhelmingly dismal tone for the PMIs, which gauge how thousands of businesses across the world fare each month. It overshadowed positive data elsewhere.

The vast U.S. services sector grew at a slightly faster pace last month as a gauge of new orders improved. China's fledgling services sector expanded at the fastest pace for 19 months. A separate measure of

worldwide private sector activity eased slightly in May but managed to grow for a 34th straight month.

The U.S. data "does not suggest that the sector or the overall economy is slipping into a recession, but it does suggest that the economy is settling into a lower growth trajectory," said Thomas Simons, an economist at Jefferies.

U.S. stocks rose after the data. Treasuries prices dipped. The euro slid after Spain said the euro zone's fourth-biggest economy was being shut out of credit markets.

The G7 meeting had little impact on markets as there was no sign finance chiefs agreed on concrete action to address problems in Spain and Greece.

That upped the ante for a European Central Bank policy meeting on Wednesday.

Financial markets are anxious about the risks cascading from a Spanish banking crisis and fret that a Greek election on June 17 could

lead Athens to leave the single currency and precipitate yet more economic turbulence.

As European policymakers struggle to contain mounting troubles there, the fallout threatens to drag the world economy into another recession.

After Tuesday's G7 finance ministers conference call, all eyes are on Wednesday's ECB meeting, as well as Federal Reserve Chairman Ben Bernanke's testimony Thursday to the U.S. Congress.

"Until the Greek elections are out of the way, this sort of uncertainty will stay with us. And even after the elections, as they are unlikely to bring a clear-cut decision either way," said Dirk Schumacher, senior European economist at Goldman Sachs.