Eurozone suffered another steep fall in private sector activity in June, which was the steepest in three years, as the fallout from the debt crisis engulfing the single-currency bloc continued to hit production and new orders.
The Composite Output Index, which measures the performance of both manufacturing and service sectors, remained unchanged at 46, the lowest reading since June 2009, a survey by Markit Economics revealed.
Economists had expected a decline to 45.5. A PMI reading below 50 signals contraction in activity. The composite PMI stayed below 50 for a fifth month running, the survey results showed. New orders at the composite level fell for a third consecutive month.
"Today's PMI figures make it clear that the second quarter will see a contraction of the Eurozone economy, Peter vanden Houte, an economist at ING Bank NV, said.
Manufacturers reported the steepest drop in output since May 2009, with production falling for the fourth successive month. The purchasing managers' index for the manufacturing sector dropped to 44.8 in June from 45.1 in May. The latest figure matched economists' forecasts.
The services activity index improved to 46.8 from 46.7 in May. The reading was expected to fall to 46.4. Services, nevertheless, suffered the third-largest drop in activity since July 2009. Services activity has fallen in nine of the past ten months.
"June's euro-zone PMI surveys confirm the picture of falling economic activity in the euro-zone as a whole and increase the chances that the ECB may take action to boost demand," said Ben May, an economist at Capital Economics.
In Germany, private sector output fell for the second month running, dropping at the fastest rate in three years. Output fell for the fourth successive month in France, though the rate of decline eased since May, which had seen the fastest downturn since April 2009.
"The manufacturing (especially) and services surveys are again dreadfully weak and reinforce belief that the Eurozone suffered renewed, appreciable GDP contraction in the second quarter," IHS Global Insight Chief Economist Howard Archer said.
Service providers reported the largest month-on-month deterioration in optimism about the outlook since October 2008, when confidence slumped due to the collapse of Lehman Brothers. Manufacturers meanwhile cut back on their purchases of inputs at the steepest rate since June 2009, citing the need to wind down inventory levels to prepare for lower production in coming months, Markit said.
Overall, private sector employment fell for a sixth consecutive month, with declines in both manufacturing and service sectors. "Of particular concern is the near-record deterioration in business optimism, combined with marked falls in employment and purchasing by companies," Markit Chief Economist Chris Williamson said.
Eurozone finance ministers are expected to begin a meeting later today, which will be followed by a mini summit by leaders of Germany, France, Spain and Italy.
Italy and France recently floated the idea of the bailout fund buying Eurozone sovereign bonds, especially debts of countries like Italy and Spain, which are facing very high borrowing costs. However, German Chancellor Angela Merkel denied that she had knowledge of any such discussions.
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