Private sector activity in the eurozone shrank at its fastest pace in 28 months in October as the debt crisis sapped new business and soured sentiment in an economy looking like it is heading into a slump, survey data showed on Friday.
Markit's composite Purchasing Managers' Index for the single currency area sank to 46.5, down from 49.1 in September and below an earlier flash estimate of 47.2. "(This) is the kind of level which frankly is pointing to recession," said Peter Dixon, economist at Commerzbank. "We knew it would it bad but clearly the fact it deteriorated more rapidly than we anticipated indicates the economy is losing momentum at a faster pace. Obviously the eurozone debt crisis is leaving its imprint on the real economy."
The unresolved crisis, which has hammered businesses across the eurozone, has entered a dangerous new phase with Greek Prime Minister George Papandreou facing a tight confidence vote later on Friday after his risky plan for a referendum on an EU/IMF bailout backfired spectacularly.
In a bid to support the ailing economy, the European Central Bank (ECB) surprised markets with a 25 basis point cut on Thursday at its first policy meeting led by Mario Draghi. Economists gave a 50-50 chance of another cut in December, according to a Reuters poll.
Markit's Services PMI also fell sharply, to 46.4 in October from 48.8 in September, its lowest reading since July 2009 and again markedly lower than an earlier flash reading of 47.2. It was the biggest downward revision from the flash reading since November 2008, when Europe was plunging into the darkest phase of the financial crisis. The index stayed below 50 for the second month running, a level that divides growth from contraction, and survey complier Markit said conditions are unlikely to improve over the next few months as the threat of an imminent recession takes hold.
The survey points to growth falling at a quarterly rate of 0.5 percent and suggested it was highly probable the economy could contract in the fourth quarter. Service providers, who range from hotels to hairdressers, post and telecom, struggled in October. The new business index tumbled to 45.3 from 47.1, and hiring stagnated for the first time since April 2010.
Country-specific data showed services activity contracting in France, Spain and Italy, while Germany and Ireland saw only modest growth. Growth in German services and factories eased to its weakest during the current 27-month period of expansion after the slight rebound in services activity was negated by the first drop in manufacturing output since June 2009.
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