Forex Journal

Eurozone private sector activity unexpectedly slipped back to contraction in February, fueling concerns that the economy may be sliding into a recession amid the region's prolonged debt crisis.

The composite output index fell to 49.7 in February from 50.4 in January. Economists expected the index to remain almost steady at 50.5. An index reading below 50 indicates contraction in activity. Nonetheless, the composite index was the second-highest in six months.

"A retreat back below the 50.0 no-change level for the Eurozone PMI is a disappointment, and highlights the ongoing risk that the region may be sliding back into recession, said Chris Williamson, chief economist at Markit.

The economist added "although business conditions are showing signs of stabilizing so far this year, which represents a marked improvement on the widespread deepening gloom seen late last year, the Eurozone is by no means out of the woods."

The manufacturing purchasing managers' index rose to 49 from 48.8 in January compared with economists' forecast for an a reading of 49.4. The factory sector has been contracting for a seventh month running. The services activity index scored 49.4, down from 50.4 in the previous month. The index was below the 50.6 reading forecast by economists.

Output rose in Germany and, to a lesser extent, in France. In both cases, however, the rate of expansion was slightly weaker than in January. Output fell across the rest of the region, and at a slightly steeper rate than in January, though less severely than late last year, Markit said.

"Indeed, the surveys reinforce our belief that it is more likely than not that the Eurozone will suffer further contraction in the first quarter of 2012 which will put it back into recession following the GDP drop of 0.3 percent quarter-on-quarter in the fourth quarter of 2011," IHS Global Insight chief economist Howard Archer said.

At composite level, Eurozone new orders fell for a seventh month running, but the pace eased for the fourth successive month. The survey also revealed that employment declined for the second consecutive month, albeit marginally.

The Eurozone economy shrank for the first time since 2009 in the fourth quarter, as escalating debt crisis and austerity measures dampened economic activity. The gross domestic product fell 0.3 percent sequentially in the fourth quarter, after expanding by 0.1 percent in the third quarter and 0.2 percent in the second quarter.

Earlier this month, the European Central Bank left its record low interest rate unchanged for the second month in a row given the weaker economic outlook and the protracted debt crisis.

Meanwhile, Eurozone leaders struck a deal on Tuesday approving a second bailout package for Greece. Though this averted a threat of an immediate default, economists say the deal is still not enough to root out the problems faced by the economy.

by RTT Staff Writer