Eurozone private sector activity plunges in April

(BRUSSELS) - Eurozone private sector activity sank at the fastest rate in five months in April, indicating the 17-nation bloc faces a longer recession than previously thought, a key survey showed on Monday.

The composite Purchasing Managers Index (PMI) compiled by the London-based research firm Markit fell to 47.4 points this month compared with 49.1 points in March. A score below the neutral 50-point line indicates contraction.

"The flash PMI signalled a faster rate of economic contraction in the eurozone during April, extending what appears to be a double-dip recession into a third consecutive quarter," Markit chief economist Chris Williamson said.

"The situation deteriorated across the region. Germany saw growth weaken to near-stagnation, while France saw a worryingly steep downturn, linked in part to increased uncertainty due to the ... presidential elections," he said.

"The rate of decline also regained momentum in the periphery, which will inevitably raise concerns about the impact of deficit-fighting austerity measures."

Despite their own weaknesses, Germany and France outperformed the rest of the monetary union, where output fell for the 11th month in a row and at the fastest pace in four months, according to the Markit data.

The PMI, a survey of 4,500 manufacturing and services firms, is used to gauge the health of an economy.

Battling a relentless debt crisis, the eurozone took a first step towards recession when its economy shrank by 0.3 percent in the fourth quarter of 2011, and economists believe it contracted against in the first quarter of 2012.

A recession is defined as two consecutive months of economic contraction.

The latest PMI "supports the idea that eurozone economic activity is likely to experience recessionary conditions throughout the course of this year," said Mark Miller, European economist at Capital Economics research firm.

Christian Schulz, senior economist at Berenberg Bank, said the PMI indicates that the eurozone remained in recession in the beginning of the second quarter amid a wave of budget cuts in Europe.

"Tough austerity measures in many Eurozone countries such as Spain and Italy, as well as the prospect of more serious austerity in others such as France and the Netherlands weigh on business sentiment," he said.

An injection of liquidity by the European Central Bank in December briefly helped the PMI rise above 50 points in January, he said.

But the indicator "has yielded to the harsh reality that the necessary adjustment in many eurozone countries has a strongly negative impact on aggregate demand," Schulz added.

On a positive note, he said that big export markets such as the United States and China are growing while German domestic demand appears to be holding up well.

"It will take some time for the initial impact of government budget cuts to fade and for structural reforms to bear fruit. The euro crisis also remains dangerous and may yet require more ECB interventions," the economist added.

"But if Europe continues to manage the crisis and reform itself, the eurozone as a whole can emerge from recession in Q3 (third quarter) 2012, pulled by the German economic locomotive."