The euro zone's dominant service sector remained in dire straits during February as new business levels plummeted and firms from banks to restaurants slashed jobs at a record pace to cut costs, data showed today.
The Markit Eurozone Purchasing Managers' Index for the service sector fell to a new record low of 39.2 in February, down from January's 42.2 and far below the 50.0 mark that divides growth from contraction.
However, it showed a small uptick from the 38.9 flash estimate and economists' expectations, and financial markets and the euro were little moved by the data.
Business indexes for the service sector - which accounts for most of the euro zone economy - fell across the big four euro area economies, with Germany, France, and Italy carving record lows, while Spain's also fell.
The news was more upbeat from China where figures earlier on Wednesday showed manufacturing edging closer towards renewed growth for the third month in a row and factories anticipating an early revival in the economy although service sector activity declined.
Economists had expected the fourth quarter of 2008 to mark the worst of the recession in the euro zone economy.
But the figures, published during a week when European stock markets tumbled to 12-year lows, suggested the first quarter may be even worse than the last three months of 2008.
"It's certainly too soon to say that the recession has reached a trough; we are going to see another sharp fall in gross domestic product (GDP) this quarter. It is not out of the question that we could see a similar size decline as we saw in the fourth quarter. It certainly looks to be a pretty big one," said Ben May at Capital Economics.
Data on Monday showed manufacturers in the 16-nation bloc also had their worst month in at least 12 years in February.
The 10-year-old Composite Index, combining services and manufacturing activity, moved to a record low of 36.2 in February from 38.3 the month before.
"This is among the data that points to a decline in GDP in the first quarter that equals more or less the decline in the fourth quarter," said Holger Sandte at WestLB.
The dismal state of the economy, along with figures released on Monday showing inflation still well below target, will strengthen expectations that the European Central Bank will cut interest rates to 1.5 per cent on Thursday.
The composite employment index was at a low of 40.8, a level not seen before in the survey's history, as firms slashed jobs at the fastest pace in at least 10 years, and the situation could be worse because many firms have cut hours.
Italian bank UniCredit's HVB unit is planning to cut around 2,500 jobs by 2010 while German carmaker Volkswagen has switched to a shorter working week.
The new business index for the services sector slumped to a new low of 35.8 in February from January's 39.6 despite firms slashing their prices to attract customers, suggesting further weakness ahead.