A sharp drop in new orders compounded the misery among eurozone companies during July, a business survey has revealed, forcing firms to lay off staff at the fastest pace since January 2010.
Markit’s composite purchasing managers index, gauging the health of thousands of eurozone companies, rose marginally in July to 46.5 from 46.4 in June but still well below the 50 threshold that marks growth.
The PMI, which has a good record of tracking economic growth, gave little hope of an imminent turnaround as the eurozone’s sovereign debt crisis now threatens the funding needs of major economies like Spain and Italy.
Order books shrivelled at the fastest rate since June 2009 – a much worse situation than portrayed in the flash reading two weeks ago and one that augurs badly for business activity in August.
While companies in Italy and Spain performed particularly poorly in July, the PMI showed the eurozone’s biggest and most resilient economy is now floundering too.
“The big worry is that the downturn in Germany may be becoming more entrenched, suggesting that the largest euro economies are seeing convergence in collective and mutually-reinforcing decline,” said Chris Williamson, chief economist at survey compiler Markit.
European Central Bank President Mario Draghi warned the risks to economic growth in the eurozone are on the downside after its policy meeting on Thursday, while sidestepping immediate action to calm the debt crisis.
Mr Williamson said the PMI was consistent with a 0.6 per cent quarterly rate of decline for the eurozone economy – far worse than the 0.1 per cent decline for this quarter predicted by economists polled by Reuters two weeks ago.
The survey’s jobs index fell to 47.2 from 48.3 in June, meaning companies cut jobs at the fastest rate since January 2010 and marking a seventh straight month of layoffs.
The euro area’s jobless rate hit a new high of 11.2 per cent in May and June, with unemployment nearing 25 per cent in Spain, the latest economy to become a flashpoint in the 30-month sovereign debt crisis.
The PMI for the services sector, which accounts for the bulk of the eurozone’s private economy, rose in July to 47.9 from 47.1 in June – a four-month high and revised up from the preliminary reading of 47.6.