The downturn in the Eurozone private sector continued in July, with the contraction in the month reflecting an unexpected sharp deterioration in manufacturing business conditions. The weak data has sparked fears of the bloc moving deeper into recession, as core economies also showed contraction in private sector activity.
The flash composite Purchasing Managers' Index held steady at 46.4, matching the consensus forecast, survey data from Markit Economics revealed Tuesday. With the reading coming below 50, the index signaled that the private sector shrank for the tenth time in the past 11 months.
Output as well as new orders declined in July, which took job losses to the highest in two-and-a-half years. To circumvent the weakness, firms reduced their selling prices to boost sales.
"The flash PMI for July suggests the euro area downturn showed no signs of letting up at the start of the third quarter and is consistent with GDP falling at a quarterly rate of around 0.6%," Chris Williamson, chief economist at Markit said.
Reflecting the steep decline in output and new orders, the manufacturing PMI fell unexpectedly to 44.1 from 45.1 in June. The reading was forecast to rise to 45.2.
On the other hand, the services PMI rose to 47.6 from 47.1. Economists were forecasting the services index to remain stable at 47.1.
According to Markit, manufacturing output fell at the steepest rate since May 2009, while the rate of decline in the services economy eased slightly for the second month.
New business declined at an accelerated pace in both the manufacturing and service sectors. Moreover, job losses gathered pace in the manufacturing as well as service sector for the seventh month in a row.
The report also showed that prices charged by companies for their goods and services showed the largest fall since February 2010. Backlogs of orders fell across the region to the greatest extent since July 2009.
Germany, the largest Eurozone economy, marked its biggest private sector contraction since June 2009. The flash composite output index fell for the sixth month running in July, to 47.3 from 48.1 in June, highlighting that business conditions are far less healthy than seen in the first half of 2012.
Meanwhile, the composite output index for France rose to a 4-month high, as stabilization in services offset weaker manufacturing performance. The flash composite PMI rose to 48 from 47.3 in June.
The International Monetary Fund forecasts that the crisis-plagued Eurozone to shrink 0.3 percent this year. The 2013 growth forecast for the currency-bloc was cut to 0.7 percent from 0.9 percent.
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