Euro zone economic downturn gathers pace

[February 20, 2009]  LONDON (AP) -- The euro zone economic downturn gathered pace in the early weeks of February, a closely watched survey revealed Friday, adding pressure on the European Central Bank to cut interest rates again in March.

The survey showed that the services and manufacturing sectors in the 16 nations that share the single currency saw business activity fall at a record rate during the month.

The preliminary estimate of the purchasing managers' index (PMI) -- a gauge of business activity -- fell to 38.9 in February from 42.2 in January for the services sector. That is the weakest since records began in 1998.

The manufacturing PMI dropped to 33.6 from 34.4, the weakest since that survey started in 1997. The composite PMI, which combines the two, dropped to 36.2 from 38.3.

A reading below 50 indicates a contraction and the bigger the difference from 50 the greater the contraction.

"Overall, the very weak level of confidence reflects the ongoing recession, and suggests that GDP should contract further in the first quarter of 2009 in the main euro zone countries," said Frederik Ducrozet, economist at Calyon Credit Agricole.

In the final quarter of 2008, the then 15-nation euro zone -- Slovakia did not join until the start of 2009 -- contracted by 1.5 percent from the previous three-month period.

The PMI figures will be updated in early March, ahead of the next rate-setting meeting of the European Central Bank. Most economists expect the central bank to start cutting rates again after deciding to keep the benchmark interest rate on hold at 2 percent in February.

[Associated Press]

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