Key gauges of euro zone services and manufacturing activity unexpectedly crashed to new lows in February, suggesting economic contraction in the first quarter of this year may even be worse than the final months of 2008.
Markit said today its flash Eurozone Purchasing Managers Index for the dominant service sector slumped to an 11-year survey low of 38.9 in February, considerably below January's 42.2 and confounding expectations for a modest rise to 42.4.
The figures, which followed data suggesting a slowing in the pace of deterioration across the euro area in January, also showed that service sector activity contracted at the fastest pace on record in the two largest economies, Germany and France.
The data, which also showed price pressures sinking to survey record lows, are sure to strengthen expectations that the European Central Bank will be forced to cut interest rates when it meets in March and is likely to cut again after then.
Factories in the euro zone fared little better with the flash manufacturing PMI also coming in at a record low of 33.6, considerably below the 50 mark that divides growth from contraction and the 34.4 level seen in January.
The move down in both sectors took the combined Composite index down to a survey record low of 36.2, from January's 38.3 and well below the 38.5 forecast - suggesting that the 1.5 per cent contraction in the economy in the last quarter of 2008 may be even worse in January-March.
“With these data there appears to be no sign of a bottoming out and Q1 looks set to be worse than Q4 in terms of economic contraction, rising unemployment and the development of deflationary pressures,” said Chris Williamson at data compiler Markit in a release.
The reports showed every single indicator moving in a direction suggesting economic deterioration.
European companies have been battling with tough credit conditions, despite historic low benchmark interest rates, and a severe global recession. That has forced many to cut jobs and offer substantial discounts in order to survive.
The output price index for service companies, ranging from banks to bars, fell to a record low of 41.9 in February from January's 43.6 as firms slashed prices more aggressively in an effort to woo customers.
The index for incoming new business for services businesses also fell to a survey record low, suggesting conditions may worsen still. The forward-looking business expectations index, which rose for two straight months, also fell in February.
The composite employment index, which measures employment broadly in the euro area, reached a record low of 41.1 as firms laid off staff to cut costs and try to remain afloat and Markit said the situation may be worse than the data suggest.
Reuters