The euro zone’s private sector contracted for the first time in two years last month according to new business surveys.
Questioning of firm’s purchasing managers showed new orders drying up and the debt crisis cutting expectations for the future.
Survey compiler Markit said the figures suggest the region’s economy will contract in the fourth quarter unless there is a turnaround in business and consumer confidence.
“The malaise is spreading to the core, where surging rates of expansion earlier in the year have turned rapidly into contraction in Germany and only very modest growth in France,” said Chris Williamson, chief economist at Markit.
Economists have predicted third and fourth quarter growth of 0.2 percent, but Williamson said the result could be even weaker.
“A mild output contraction in September sits in stark contrast to the buoyant pace of expansion seen at the start of the year, suggesting that the economy will have stagnated in the third quarter as a whole,” Williamson said.
“Even more disappointing is the steep drop in new business, which suggests that GDP will contract in the fourth quarter unless business and consumer confidence rally in coming weeks.”
Optimism dimmed substantially among the 4,000 services firms surveyed, which range from financial services to restaurants.
Earlier data from Germany, Europe’s largest economy and the backbone of the bloc’s now-stalled recovery, showed activity close to stagnation, while in France the rate of growth slowed to a 26-month low.
Italy’s service sector contracted for the fourth month and at a faster pace than expected while Spain’s shrank for the third straight month.
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