Eurozone private sector activity downturn worsened to a three-year low in May after the economy narrowly escaped a recession in the first quarter, preliminary data from Markit Economics revealed Thursday.
The growth-engine of the 17-nation bloc Germany also returned to a negative zone. Intensifying the downturn, France's private sector shrank at the fastest since April 2009. In the rest of the Eurozone, the pace of contraction remained severe.
The flash composite output index dropped more than expected to 45.9 from 46.7 in April. A score below 50 indicates contraction in the sector.
The expected reading for May was 46.6. The reading signals the fastest rate of decline since June 2009.
Markit Chief Economist Chris Williamson said the survey suggests an economic contraction of at least 0.5 percent in the second quarter, as an increasingly steep downturn in the periphery infects both France and Germany.
The Paris-based Organization for Economic Co-operation and Development has forecast the euro area to contract 0.1 percent in 2012. Elsewhere, the European Commission estimates 0.3 percent decline.
Although there is reluctance within the European Central Bank to take interest rates below 1 percent, the case to do so will become ever more compelling if Eurozone economic activity does not show any sign of improvement in the near term, IHS Global Insight Chief European Economist Howard Archer said.
The Purchasing Managers' Index for manufacturing came in at 45 in May, a 35-month low. It was down from 45.9 in April and below the consensus forecast of 46.
Likewise, the services PMI dipped to 46.5 from 46.9 a month ago. The consensus forecast called for a reading of 46.7.
The Eurozone services activity declined at the fastest rates for seven months, while manufacturing production dropped at the steepest rate since June 2009.
At the same time, incoming new business declined for the tenth consecutive month and at the fastest rate since 2009. Moreover, private sector continued to reduce the workforce, logging the fifth successive drop.
Input price inflation slowed to the lowest of the year so far, reflecting a slowdown in manufacturing prices due to weak demand for raw materials. As competitive pressures and weak demand conditions weighed on pricing power, output charges fell slightly for the second successive month.
The German private sector contracted for the first time in six months, with manufacturing output falling at the sharpest rate for nearly three years, offsetting resilient services growth. The composite output index slipped to 49.6 from 50.5 in April.
France's private sector output contracted notably in May, mirroring declines in both manufacturing and services. The composite PMI fell to 44.7 from 45.9 in the previous month.
by RTT Staff Writer
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