(BRUSSELS) - Business activity in the 15 countries using the euro pulled back in July to the lowest level since just after the September 11, 2001 terror attacks, a key survey showed on Thursday

Economists said the drop in activity, which was sharper than expected, raised the risk that the eurozone may be teetering on the brink of recession, just as it is struggling to cope with record inflation.

The eurozone's purchasing managers' index (PMI), compiled by data and research group Markit, slid more sharply than expected in July to 47.8 points, from 49.3 in June, according to an initial estimate.

The drop, which indicated that private sector activity in the 15-country zone was at the lowest level since November 2001, was worse than economists' expectations for a result of 48.7 points, as polled by Dow Jones Newswires.

It came on the heals of national reports from eurozone economic heavyweights Germany, France and Italy all painting a grim picture of economic activity.

"Economic growth in the eurozone is coming almost to a halt," said Bank of America economist Holger Schmieding. "This is the clear message from the dismal set of leading indicators published today."

The eurozone PMI survey's component for the services sector fell to 48.3 points in July from 49.1 in June, hitting the lowest level since June 2003.

On the manufacturing front the PMI index was also down, to 47.5 in July from 49.2 in June, the worst reading since June 2003.

"The 'flash' July service sector and manufacturing purchasing managers' surveys for the eurozone are very worrying on both the growth and inflation fronts," said economist Howard Archer at consultants Global Insight.

"As such, they add to the deepening concern over the current state of the eurozone economy and its prospects," he added.

Economist Ben May at Capital Economics said: "The available eurozone data already suggest that there is a chance that GDP (gross domestic product) contracted in the second quarter."

"Unless we see a recovery in the composite PMI over the next couple of months there might even be another fall in the third quarter," he added. A recession is technically defined as two successive quarters of economic contraction.

Despite the fast deteriorating economic outlook in Europe, the European Central Bank lifted interest rates this month to keep a lid on inflation, which hit a record 4.0 percent in June.

"Will the recent news stop the ECB from raising? We are not sure," said UBS economist Stephane Deo. "We still expect inflation at 4.3 percent in August: way too high for the ECB."

"We think it is a close call but the odds for another hike have obviously declined today," he added.

Likewise, Bank of America's Schmieding said: "The data strengthen those at the ECB who had gone along only grudgingly with the July rate hike and now want to prevent any extra rate increase."

"With just a bit of bad luck, any further monetary tightening could possibly push the eurozone into a brief recession, in our view," he added.

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