The combined output of manufacturing and services industries in the eurozone contracted unexpectedly in February, according to a preliminary purchasing managers index (PMI) released by Markit Economics on Wednesday.
The euro area composite PMI, based on a survey of purchasing managers in both industries, dropped to 49.7 from 50.4 in January, London-based Markit Economics said in an initial estimate released today. Economists had forecast a reading of 50.50.
The PMI for the services sector fell to 49.4 from 50.4 in January, while the manufacturing PMI rose to a six-month high at 49.0 versus 48.8 in January.
"A retreat back below the 50.0 no-change level for the euro-zone 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.
A reading below 50 indicates contraction while anything above that denotes expansion.
Nonetheless, the latest Eurozone composite index was the second-highest in six months.
European stock markets turned lower after the gauge for private business activity in the eurozone showed contraction in February. The Stoxx Europe 600 index was down ~0.6% at 265. The benchmarks in the UK, France and Germany were down 0.4% to 1%.
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 euro region, and at a slightly steeper rate than in January.
“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.
"Although business conditions are showing signs of stabilising 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. Demand needs to improve considerably in coming months before we can safely say that the region will return to anything like reasonable growth," Williamson said.
“Encouragingly, business confidence continues to improve on the better news flow surrounding the sovereign debt crisis and renewed stimulus from the ECB. But even German companies remain unsure about the outlook, and many are clearly seeking to cut costs where possible in order to be more competitive in a tough business environment," he said.
“Sharp divergences in performance also continued to be evident across the region, with modest growth in Germany contrasting with a steep decline in the periphery. Given the lack of domestic demand in austerity-hit peripheral countries, this divergence looks set to continue for some time,” Williamson said.