Euro zone private sector slump drags on

Huge drop in French business activity outstrips downturns in Spain and Italy

A drop in French business activity outstripped even the downturns in Spain and Italy, a survey showed today. Photograph: Jock Fistick/Bloomberg

A drop in French business activity outstripped even the downturns in Spain and Italy, a survey showed today. Photograph: Jock Fistick/Bloomberg

Thu, Apr 4, 2013, 10:03

The euro zone's economic decline dragged on unabated in March, marked by a huge drop in French business activity that outstripped even the downturns in Spain and Italy, a survey showed today.

Markit's Eurozone Services PMI, which surveys thousands of companies including banks, hotels and restaurants, showed their order books shrank at the fastest pace in six months in March.

Falling to 46.4 in March from 47.9 in February, the PMI has spent all but one of the last 20 months rooted below the 50 threshold dividing growth from contration. It was also down a tick from a preliminary reading of 46.5 reported two weeks ago.

That at least suggested the mishandling of Cyprus's €10 billion bailout at the end of March had no immediate impact on the private economy, survey compiler Markit said.

But it added that anecdotal evidence suggested the Cyprus debacle had still had a disquieting effect.

"The recession is deepening once again as businesses report that they have become increasingly worried about the region's debt crisis and political instability," said Chris Williamson, chief economist at Markit.

"The unresolved election in Italy was commonly cited as a key factor clouding the economic outlook in March, and the botched bail-out of Cyprus could well filter through to a further worsening of business sentiment across the region in April."

Businesses in France, traditionally grouped with Germany as the currency union's "core" economic engine, saw their worst downturn since the nadir of the Great Recession of 2008-09.

And even in Germany, the biggest European economy, growth slowed to a crawl in March.

"That suggests that the only source of bright light in an otherwise gloomy region has once again begun to fade," said Mr Williamson.

The decline in the new orders index, which often provides a clue on how the PMI will look next month, fell to 45.1 in March from 46.3.

Overall, the survey showed scant sign of improvement in the euro zone economy, even if the contraction in the economy from January to March was likely somewhat less than the 0.6 percent decline seen in the fourth quarter of last year.

The PMIs are starkly at odds with the "positive contagion" in financial markets described by European Central Bank President Mario Draghi in January.

The ECB's April policy meeting concludes later today, and economists polled by Reuters expect no change in interest rates.

The composite PMI, which combines the services data with Tuesday's manufacturing report, fell to 46.5 in March from 47.9 in February - unchanged from the preliminary flash reading.

Euro zone firms continued to cut jobs in March, albeit at the slowest pace since last June.

Reuters