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Eurozone Private Sector Contraction Worsens, Strengthens Recession Fears

Eurozone Private Sector Contraction Worsens, Strengthens Recession Fears

Eurozone private sector contraction unexpectedly deepened in March as activity in both manufacturing and service sectors deteriorated further adding to concerns that the economy may have slid back into recession.

A survey by Markit Economics revealed Thursday that the flash composite output index fell to a three-month low of 48.7 in March from 49.3 in February. An index reading below 50 suggests contraction. Economists had expected the score to improve to 49.6.

The latest reading signaled a contraction in business activity for the second successive month, and the sixth decline in the past seven months.

"The Eurozone economy contracted at a faster rate in March, suggesting that the region has fallen back into recession, with output now having fallen in both the final quarter of last year and the first quarter of 2012," said Chris Williamson, chief economist at Markit.

Private sector output rose in Germany, but the rate of growth slowed to a three-month low. Output, meanwhile, fell slightly in France for the first time in four months, and dropped sharply again in the rest of the region.

Eurozone's flash manufacturing purchasing managers' index fell to a 3-month low of 47.7 in March from 49 in the previous month. Economists were looking for an increase in the index to 49.5. The manufacturing output index also slipped to a three-month low of 48.8 from 50.3.

The services activity index dropped to 48.7 from 48.8 in February. This was the lowest reading in four months. Economists had forecast a rise to 49.2.

"Indeed, the surveys reinforce our belief that it is more likely than not that the Eurozone will suffer further modest contraction in the first quarter of 2012 which will put it back into recession," said Howard Archer, chief U.K. and European economist at IHS Global Insight.

Overall incoming new business fell for the eighth successive month and at the fastest rate since December. The rate of decline of new orders also exceeded that for output, causing backlogs of work to fall for the ninth successive month. This is likely to put further downward pressure on output levels in April, Markit said.

Gross domestic product declined 0.3 percent in the fourth quarter, marking the first contraction in economic activity since the second quarter of 2009. The European Commission expects the region to experience a mild recession, with the economy expected to contract 0.3 percent this year.

In an interview published in a German daily today, European Central Bank President Mario Draghi said that the situation in Eurozone is stabilizing and that the worst of the crisis is over.

Tensions surrounding the debt crisis abated somewhat after Eurozone handed out a second bailout to Greece this month. The ECB's three-year loans to banks in the single-currency bloc also soothed investor concerns.

According to the Markit survey, confidence among service providers improved for the fifth successive month to signal the highest degree of optimism since last July.

by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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