Eurozone private sector contraction slows

Eurozone private sector activity shrank for the fourth month running in December marking the worst quarter for two and a half years, a key survey of trends showed on Thursday. But the slowdown eased for the second month, the Markit survey of leading indicators also showed. Manufacturing output by eurozone powerhouse Germany rallied after a fall in November, and decline in France slowed "to a marginal pace." The leading indicator survey, the purchasing managers' index (PMI), compiled by private organisation Markit said that the index reading for the eurozone had marked the worst quarter for two and a half years even though the rate of decline had eased in December. The survey monitors sentiment among purchasing managers in the private sector and is a closely watched indicator of the trend of business activity to come. It is of particular significance now, given the eurozone debt crisis and widespread analysis that uncertainty is dragging down business confidence, adding to the risks of recession. Markit chief economist Chris Williamson commented: "The eurozone suffered its worst quarter for two and a half years in the final three months of 2011, with the PMI data suggesting that the region's economy is likely to have contracted by 0.6 percent." However "a slight easing in the rate of contraction for the second month in a row in December provides some hope that the rate of decline may weaken further as we move into the new year. "But another quarter of decline cannot be ruled out." The survey in December had revealed a widening gap in performance in the eurozone. Germany probably stagnated in the fourth quarter despite a return to growth in December and France had steadied but in other eurozone countries "the rate of contraction remained steep." Markit said that its composite output index "signalled contraction for the fourth successive month in December", on an preliminary estimate. But "the index rose from 47.0 in November to 47.9, indicating an easing in the rate of decline for the second month in a row and the smallest fall in output for three months." Markit said that its research indicated that: "Manufacturing output fell for the fifth successive month, while services activity dropped for the fourth month. In both cases the rate of decline eased." But new orders to the manufacturing sector "fell particularly steeply again, dropping at a rate only slightly weaker than November's two-and-a-half-year record. But Markit said that German manufacturing output had signalled "modest growth" which reversed a decline in November. Excluding Germany and France, eurozone activity fell sharply and only slightly slower than in October. Markit said that expectations for growth in the services sector in the coming year "remained very weak". The outlook in Germany was "neutral" and improved optimism in France was offset by a steep drop in expectations in other countries to the lowest since February 2009.