Euro Zone Recession More Likely After Business Activity Slips

Euro zone private sector business activity shrunk in February, an unexpected turn that has renewed old fears and prompted new concerns of a recession in the region while it slogs through a debt crisis, a report said Wednesday.

The Markit Euro zone PMI Composite Output Index slipped from 50.4 in January to 49.7 in February, based on data collected last week by Markit. Economists surveyed by Dow Jones had expected a 50.8 reading.

Indexes that fall below 50 are a sign of contracting private sector activity in the 17-country Euro zone region. Concern in the region is predicated by the prolonged debt crisis that has led to billions of euros in bailouts for the economies of Greece, Portugal and Ireland.

Earlier this week, Euro zone finance ministers signed off on a deal that provides 130 billion additional euros ($172.1 billion) in Greek bailout funds.

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, Chris Williamson, the chief economist at Markit, told RTT News.

Although business conditions are showing signs of stabilizing 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.

Nevertheless, the number also marks the second-highest of the past six months, suggesting the Euro zone economy has stabilized in January and February after shrinking 0.3 percent in the final quarter of 2011.

Output jumped in both Germany and France, but those rates fell below the output rate growth in January. For the rest of the region, output slipped at a larger rate than January, but a smaller rate than last year. New orders in the Euro zone slipped for the seventh consecutive month, but the pace of that slip slowed for the fourth consecutive month.

According to Markit's data, the rate of employment in the Euro zone shrank for the second consecutive month, though that decline was marginal.

The Euro zone economy experienced a decline in the 2011 fourth quarter for the first time since 2009 as the debt crisis started to gain steam. Gross domestic product in the region slipped 0.3 percent after gaining 0.1 percent and 0.2 percent in the third and second quarters, respectively.