Activity in the euro zone's manufacturing and services sectors slowed, defying expectations, as domestic demand fell and indications pointed to the region entering recession.
The purchasing managers' index fell to 48.7 in March from 49.3 in February, Bloomberg reported. Economists surveyed by Dow Jones Newswires had expected a rise to 49.6.
The drop “is clearly a disappointment following the brief return to growth seen in January, and suggests that policymakers will need to seek ways to revive economic growth across the region again,” Chris Williamson, chief economist at Markit, which produces the index, said in the report.
This is the sixth decline in business activity in the past seven months, with output averaging a downward trend over the first quarter. Incoming new business dropped for the eighth month in a row and fell at the fastest rate since December. New orders also fell, causing a drop in work backlogs.
Unemployment rose for the third straight month as new orders in manufacturing and services dropped at the fastest rate for three months. While the company job loss rate was modest, it was still at a two-year high, Markit said.
Williamson said the area was likely falling into recession. “The downturn is only very mild at the moment," he was quoted saying, "with the PMI signaling a drop in GDP of approximately 0.1% to 0.2%, and an upturn in business confidence in the service sector provides hope that conditions may improve again later in the year.
“However, 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.”