Eurozone on brink of recession

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Eurozone on brink of recession

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The eurozone economy is in danger of tipping into recession as the services sector shrank this month along with manufacturing.

Surveys of company purchasing managers (PMI) published on Wednesday showed unexpectedly weak activity in the region’s most powerful economy, Germany, as well as in France, even as the gap between them and the struggling periphery nations widened.

Manufacturing orders in the region fell for the ninth month running.

That weakness was echoed in China, whose PMI showed export orders falling in their worst performance in eight months. Europe is China’s biggest export market.

Several economists said the euro zone PMI reports suggested no growth in the current quarter, reigniting worries about a mild recession after a raft of more upbeat data in recent weeks.

“The economy remains stuck in low gear,” said Peter Dixon at Commerzbank. “It’s indicative of a flatlining economy, maybe slightly contracting rather than a major slowdown. It doesn’t bode well for the first quarter.”

The euro zone economy contracted 0.3 percent in the closing months of 2011 so a second quarter of contraction would meet the technical definition of recession.

The PMI data reinforces the chances that European Central Bank could cut rates to a record low of 0.75 percent next quarter.

Private sector firms reduced their work force for the second month running in a bid to cut costs.

“It is not a great sign. There have been widespread job losses in the periphery, which you would expect. More worryingly there was virtually no job creation going on in France and in Germany the rate of growth has eased quite sharply,” Chris Williamson at data provider Markit said.