Eurozone Business Activity Eases Indicating Fragile Economic Recovery

The pace of growth in Eurozone business activity slowed down in October due to lower expansion rate in services sector, suggesting that the ongoing recovery in the region is sluggish.

The Markit flash Eurozone composite output index declined to a two-month low at 51.5 in October from 52.2 in September, a 27-month high. Analysts expected a monthly reading of 52.5.

Any reading above 50 indicates an expansion in business activity.

The flash services purchasing managers' index (PMI) plunged to 50.9 from 52.2 in September, while the manufacturing PMI continued to rise in October, increasing to 51.3 from 51.1 in September.

Commenting on the data, Markit chief economist Chris Williamson said it is too early to say that "the recovery is losing momentum".

"The dip in the PMI in October is clearly disappointing, but it would be unwise to read too much into one month's data," Williamson said.

"The survey data have been running in positive territory for four consecutive months now and indicate that the Eurozone economy expanded at a quarterly rate of 0.2% at the start of the fourth quarter, suggesting an ongoing, albeit sluggish, recovery," he added.

Germany and France

Eurozone's largest economies, Germany and France, showed signs of moderation in activity growth in October.

Growth slowed to a three-month low in Germany, with the composite index falling to 52.6 from 53.2 in September. The Germany services PMI declined to 52.3 from 53.7, while manufacturing PMI rose to 51.5 from 51.1.

"A slower rate of expansion in services activity meant that overall growth eased slightly from the trend recorded over the third quarter," said Markit economist Tim Moore.

"However, the stronger manufacturing outturn during October is a signal that the Germany's resilient economic performance has continued this autumn, while sustained gains in new orders suggest that private sector companies will remain on a growth footing in the months ahead," he added.

Meanwhile, France posted a negligible expansion as its PMI dipped closer toward neutrality at 50.1 from 50.5 in September. Services PMI declined to 50.2 from 51.0, while manufacturing PMI improved to 49.5 from 48.5.

"The French private sector economy delivered a flat performance at the start of Q4, as a slower fall in manufacturing output offset a softer showing from the service sector," Markit economist Jack Kennedy said.

"Although new business slipped back into contraction, stabilising employment and improved service sector business expectations provide some signs of encouragement as we move towards the end of the year."

The rest of the eurozone reported modest growth of activity for the third month running, according to Markit.

No Assurance for Sustainable Recovery

Having suffered from the credit crisis, the single-currency region's economy posted 0.3% growth in the second quarter of 2013, ending its longest ever recession.

The region is expected to post a similar growth rate for the third quarter in data due to be released in November.

However, European Central Bank (ECB) president Mario Draghi said earlier in October that the recovery in the bloc remained "weak, fragile, uneven". He added that the ECB is "ready to consider all available instruments" to ensure growth stability.

The PMI data also indicate that the region is yet to achieve stability, according to Markit.

"The dip in the PMI will remind policymakers that a sustainable upturn is by no means assured, and adds confirmation to the ECB's view that the recovery is slow, uneven and fragile," Williamson said.

"Attention is likely to be focused on whether the region requires more policy action to boost the recovery rather than on the timing of any withdrawal of stimulus."