Hopes of a eurozone recovery were dealt a blow on Thursday by a very weak indicator of business activity in the French economy, which hit its lowest in nearly four years, prompting fears that Paris was stuck in a "downward spiral".
The Markit "flash" purchasing managers' index data for France was released alongside a much more robust survey of German businesses, which indicated Europe's largest economy was likely to return to growth in the first quarter after contracting in the last three months of 2012, and a wider eurozone PMI indicating further contraction ahead.
The data for France, the second-biggest eurozone economy, painted a bleak picture. The so-called composite output index, which measures both services and manufacturing, fell to 42.3 in February from 42.7 in January, close to a four-year low. Any reading below 50 indicates contraction.
While the manufacturing component actually staged a slight recovery over the previous month, Markit's services activity index for France fell to 42.7 from 43.6 the previous month.
"The broad-based weakness across manufacturing and services leaves scant room for optimism, with a range of indicators from new orders, backlogs, employment and output prices all residing at depressed levels," said Jack Kennedy, the author of Markit's France flash survey.
"Panellists reported that a general lack of confidence in the economic outlook had resulted in clients reining in spending and postponing orders, feeding further back into the downward spiral."
While Markit's parallel survey for Germany was much more positive -- the headline composite index eased to 52.7 in February from 54.4 in January -- it also fell short of market expectations.
For the eurozone as a whole, Markit's composite output index fell to 47.3 in February from 48.6 in January. The reading was consistent with a first-quarter gross domestic product contraction of 0.2-0.3 per cent, said Chris Williamson, its chief economist.
While job shedding was reported to have eased in both Germany and France, it accelerated across the rest of the region on average, Markit said.
"Today's figures are a reality check," said Peter Vanden Houte, economist at ING. "The improvement in Europe has until now been a financial markets story, while the real economy remains in the doldrums. More needs to happen to put the eurozone on a sustainable recovery path."
The PMI data are frequently cited by European Central Bank officials as a leading indicator for economic growth. While the bank's cheap funding operations for commercial banks and its offer to buy sovereign bonds have greatly calmed financial markets, the hard data across much of the eurozone has remained very bad with unemployment rising and few, if any, signs of growth.
The ECB has lately repeatedly stressed that its monetary policy is already "accommodative" and has created room for politicians to press on with structural reforms, but Thursday's PMIs are likely to increase calls for a further interest rate cut.
The Financial Times