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Eurozone Private Sector Faces Sharpest Contraction Since 2009


Eurozone private sector activity fell to a 39-month low in September, a survey showed, and the deterioration witnessed over the last few months signal that the single currency region is clearly heading into a severe recession.

The composite output index, which measures activity in the manufacturing sector and the service sector, fell unexpectedly to 45.9 from 46.3 in August, preliminary data released by Markit Economics showed Thursday.

The index was expected to climb to 46.6. A reading below 50 suggest contraction in the private sector, which has shrunk in twelve out of the past thirteen months.

Manufacturing and services sectors' purchasing managers' indexes (PMI) also reported steep rates of decline in September. Manufacturing output fell at the slowest rate since April, while the service sector saw the largest drop in activity since July 2009.

The flash PMI is consistent with GDP contracting by 0.6 percent in the third quarter and sending the region back into a technical recession, Markit Chief Economist Chris Williamson said.

The seasonally adjusted PMI for the euro area manufacturing sector rose to a six-month high of 46 in September from 45.1 in August, but remained below the no-change 50 mark that separates growth from contraction. Economists had expected the index to rise to 45.5.

Meanwhile, the corresponding indicator for the service sector dropped to 46 in September from 47.2 in August, hitting the lowest level in 38 months. The reading was well below the 47.5 level forecast by economists.

Output in the manufacturing sector decreased at a slightly slower pace in September, with the relevant indicator rising to a five-month high of 45.5 from 44.4 in August, the survey showed.

New business weakened further in both manufacturing and services. Employment fell for the ninth consecutive month across the Eurozone. Moreover, the survey revealed an increase in price pressures.

In order to reduce the impact of the debt crisis that hurt the economy, the European Central Bank early this month introduced a new bond buying programme called outright monetary transactions.

The decline in PMI is another reminder that the ECB's new asset purchase programme is not an answer to all of the region's problems, Ben May, a European economist at Capital Economics said.

The survey heighten the belief that the ECB will be cutting interest rates by a quarter point to a new record low of 0.50 percent sooner rather than later, with a move looking ever more likely in October, said IHS Global Insight's economist Howard Archer.

There was a deep divergence among Germany and France. While the German private sector moved close to stagnation, France shrank at the fastest pace since April 2009 driven by a marked decline in incoming new business.

The flash German composite PMI rose to a 5-month high of 49.7 in September. The service sector returned to a path of expansion, while manufacturing continued to contract.

At the same time, the flash French composite output index fell to 44.1 in September from 48 in August. Accelerated falls in output were recorded in both the manufacturing and service sectors.

by RTTNews Staff Writer

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