Forexpros – Manufacturing activity in the euro zone deteriorated unexpectedly in March, remaining in contraction territory for the eighth consecutive month, preliminary data showed on Thursday.
In a report, market research group Markit said that its preliminary manufacturing purchasing managers’ index fell by 1.3 points to a seasonally adjusted 47.7 in March from a final reading of 49.0 in February.
Analysts had expected the index to ease up by 0.6 points to 49.6 in March.
On the index, a reading above 50.0 indicates industry expansion, below indicates contraction.
The manufacturing PMI suggests that the euro zone has slipped back into a technical recession, defined as two consecutive quarters of falling output.
The report showed that service sector activity in the euro zone declined to the lowest level in four months in March.
The preliminary services purchasing managers’ index dipped by 0.1 points to a seasonally adjusted 48.7 from 48.8 in February. Analysts had expected the index to rise by 0.5 points to 49.3.
Output rose in Germany, but the rate of growth slowed to a three-month low to show only a marginal gain. Output meanwhile fell slightly in France for the first time in four months, and dropped sharply again in the rest of the region.
Incoming new business fell for the eighth successive month, deteriorating at the fastest rate since December.
New orders fell at the fastest rate for three months in both manufacturing and services, while input prices showed the steepest rise since last June.
Commenting on the report, Chris Williamson, Chief Economist at Markit said, “The euro zone economy contracted at a faster rate in March, suggesting that the region has fallen back into recession.”
He added that, “firms are clearly focusing on cost reduction, with employment falling at the fastest rate for two years as inflows of new business continued to deteriorate, reflecting weak demand across the region.”
“Germany and France look to have avoided a return to recession, but only by very narrow margins. Elsewhere in the euro zone the situation is worse, with both business activity and employment falling sharply again in March,” Williamson said.
Following the release of the data, the euro remained lower against the U.S. dollar, with EUR/USD shedding 0.41% to trade at 1.3162.
Meanwhile, European stock markets added to losses following the weak data. The EURO STOXX 50 tumbled 1.35%, France’s CAC 40 dropped 1.3%, London’s FTSE 100 declined 0.8%, while Germany’s DAX sank 1.3%.
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