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Euro zone economy worsens markedly in April

The map of Europe is featured on the face of a one Euro coin seen in this photo illustration taken in Paris, January 31, 2012.

MAL Langsdon/Reuters

The euro zone's vast services sector shrivelled at a much faster rate in April than initially thought, a business survey showed on Friday, suggesting that the bloc's recession could extend through to mid-year.

The final reading of April's Markit Eurozone Services PMI came in at 46.9, a full point lower than the preliminary reading of 47.9 reported two weeks ago, which itself was far weaker than any economist polled by Reuters had expected.

It was the steepest downward revision to the PMI since October 2008 – a month after Lehman Brothers collapsed – and a sharp fall from 49.2 in March. Anything below 50 signifies contraction.

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Survey compiler Markit attributed the revision to business conditions worsening at a faster rate towards the end of the month, and said the figure was consistent with a 0.5 per cent quarterly rate of economic contraction.

"Little can be said to remain of any 'core' of strength in the region," said Chris Williamson, chief economist at Markit.

"Growth has practically ground to a halt even in Germany, and France has joined Italy and Spain in seeing a strong rate of economic decline."

On Thursday, European Central Bank President Mario Draghi said the euro zone economy would recover gradually over the year. But the latest PMIs, which have a good record of tracking economic growth, suggest he will have to wait a while yet.

"Stimulus measures implemented by the ECB have not had a lasting impact on the real economy. Confidence also fell back further in April," said Williamson.

Economists polled last month said they expected the euro zone economy to contract 0.4 per cent this year overall.

The services employment index slumped to 48.3 from 49.4 in March, meaning companies last month cut jobs at the fastest rate since February 2010.

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Euro zone unemployment hit 10.9 per cent in March, equalling a record high set 15 years ago, and the latest PMIs suggest that is unlikely to improve.

New business, backlogs of work and input and output prices all showed significant downward revisions compared with the initial flash readings.

April's final composite PMI, which combines the services and Wednesday's manufacturing surveys, also took a hefty cut from its preliminary reading – to 46.7 from 47.4, and was some way off March's 49.1.

It also showed a steep drop in order books, which often suggests the next month's headline PMI reading will be worse. The new business index hit 44.8 compared with 47.6 – its worst showing October last year.

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