The euro zone private sector services economy shrank sharply in December and firms cut more jobs than first estimated, a survey showed, pointing to a deep recession lasting for at least a good part of the year.
With inflationary pressures evaporating and no sign that businesses - now cutting payrolls at a rapid pace - are sensing a pick-up any time soon, the data reinforces expectations the European Central Bank is likely to cut interest rates to new lows.
The Markit Eurozone Purchasing Managers' Index of around 2,000 key companies in the services sector, covering banks to retail stores, fell to 42.1 in December from 42.5 in November, just above the 42 flash level and as forecast by economists.
It marked a new low in the survey's 10-year history, well below the 50.0 level that divides growth from contraction, and toughened economists' calls for the ECB to cut its key interest rate from the current 2.5 per cent when it meets next week.
"Pressure is mounting on the European Central Bank to relax monetary policy significantly further at its 15 January meeting," said Howard Archer, chief European economist at IHS Global Insight.
Economists were agreed that the figures point to a sharp contraction in gross domestic product (GDP) in the fourth quarter. Markit's own estimate was a 0.6 per cent contraction, but Dominic Byrant of BNP Paribas said it could be 1.0 per cent.
"We certainly wouldn't bet against it drifting lower in the next few months. The flow of news is going to look pretty poor in the next two to three months at least," he said, adding: "an ECB cut next week would be sensible."
Official data shows the euro zone economy shrank by 0.2 per cent, quarter-on-quarter, in both the second and third quarters of last year.
The euro fell sharply on the foreign exchanges against major currencies before the data were released and the data only reinforced the view that the currency's recent strength has been hurting euro zone exporters.
Britain's services sector fared no better in December, shrinking at a near-record pace with the climate for jobs the worst in that series' 12-year history.
Financial markets are braced for another fall in the equivalent survey for the United States, due from the Institute for Supply Management at 3pm.
The euro zone services survey showed firms cutting jobs much more aggressively than first thought. The employment sub-index fell to 46.2, revised down from the 47.3 flash estimate and below the 47.9 November level. Business sentiment was mired near a record low for the survey, and new orders hit a new low.
The fall in the services PMI, alongside a record low level for the manufacturing PMI released on Friday, took the Composite Index down to 38.2 in December from 38.9 the previous month, itself a new survey low.
While business output for the overall euro zone private sector fell to a record low at the end of the year, inflationary pressures also cooled quickly as oil prices continued to slide.
Both the survey's price measures fell to their lowest levels since June 2003, with the input price measure showing barely any inflation while output prices fell more sharply than in November.
Reuters