Euro Zone Recession Deepens: Markit Eurozone PMI Report

The euro zone's economic decline accelerated in April, plunging the region deeper into recession, according to the Markit Flash Eurozone PMI Composite Output Index, which tumbled to its lowest level in five months.

The flash (euro zone) PMI signaled a faster rate of economic contraction in the euro zone during April, extending what appears to be a double-dip recession into a third consecutive quarter, Chris Williamson, chief economist at Markit, said Monday in a statement.

The index dropped almost two points to 47.4 in April from 49.1 from March, a move that signaled a faster rate of decline of private sector economic activity, according to the report. Euro zone output has fallen seven times in the previous eight months, and the decline of output in manufacturing and services in April was the fastest it's been for five months.

Most troubling, the German economy slowed substantially and experienced its weakest growth this year as weak service sector expansion was offset by a marked contraction in manufacturing output. France also stumbled as its output fell for the second consecutive month and the rate of decline accelerated to the fastest rate since October, the Markit report said. France's shrinkage was due to dropping manufacturing output combined with a loss of service sector activity.

Despite rough conditions in April, though, France and Germany still outperformed the rest of the euro zone -- where output dropped for the 11^th consecutive month to its fastest rate of decline in four months. Both manufacturing and services activity took a hit in the periphery nations.

Across the euro zone, incoming new business dropped for the ninth consecutive month in April and showed the most precipitous drop since October, according to Markit. New manufacturing orders in particular were hit hard, dropping for the 11^th straight month and at the fastest rate since 2011. Likewise, the service industry saw more modest declines, as new business fell for the eighth straight month, the largest decline since October.

Business confidence dropped in April, and growth expectations for service companies fell to a three-month low. The forward-looking orders-to-inventory ratio reached a five-month low in the manufacturing sector.

Work backlogs in the euro zone also shrank in April as a result of the decline in new orders. While the decline in manufacturing backlogs slowed slightly, the services sector didn't experience a similar easing and instead suffered the largest fall since September 2009.

Declining orders also led firms to drop employees for the fourth consecutive month and at the fastest rate since February 2010. Germany experienced its first drop in employment since February 2010, while France reported its second successive loss. However, in both cases, the rate of job cutting was only very modest, the Markit report said. The loss of jobs in the periphery, though, didn't moderate in April.

Prices charged by companies dropped slightly, and a modest increase in manufacturing prices was offset by a drop in the service sector. Input price inflation dropped to its lowest level in three months, yet still remained higher than at the end of 2011.

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