Euro-area recession fears grow

Fears that the euro zone will slide back into recession intensified today as data revealed the fastest contraction in the manufacturing and services sectors for two years.

The bleak economic data will heap further pressure on politicians to thrash out a set of measures to rescue the eurozone’s finances and restore confidence to markets at a second meeting on Wednesday.

The Markit eurozone purchasing managers index (PMI), where a figure under 50 indicates a decline, fell to 47.2 in October, its lowest since July 2009 and the second month in a row in which it has been in negative territory.

Markit’s chief economist Chris Williamson said: “The PMI signals a heightened risk of the eurozone sliding back into recession.” The problems caused by the high levels of debt in the eurozone have been worsened by the economic slowdown, which makes it harder for its members to keep up with debt repayments amid fears that large economies such as Spain or Italy could need to be bailed out.

Eurozone leaders are this week expected to hammer out a series of measures to restore confidence to the markets, including increasing the size of the bail-out fund to more than €1 trillion and allowing Greece to be let off more of its debt repayments.

Markit said manufacturing output fell for the third month running in October, while services activity fell for the second month, with the powerhouse German economy also showing signs of a slowdown.

Mr Williamson went on: “Forward-looking indicators, such as the further lowering of expectations of services growth in the year ahead and the near-stalling of job creation, suggest that companies are bracing themselves for the situation to continue to deteriorate.”

In Germany, the manufacturing sector slipped into decline, while the country’s overall output slipped to a modest increase compared to the strong growth seen in the first half of the year.

France saw a fall in private sector output for the first time in more than two years, led by “a worryingly steep deterioration” in the service sector.

The only ray of hope was that price pressures have eased, especially in manufacturing, where they fell for the first time in more than two years.

Howard Archer, chief economist at IHS Global Insight, said: “The October eurozone purchasing managers’ surveys are dismal across the board, thereby adding to already serious eurozone economic woes.

“The surveys also highlight the need for eurozone policymakers to take a quantum leap forward this week in dealing with the eurozone sovereign debt crisis, so boosting confidence and calming the markets.”