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A Greek (R) and an EU flag fly over Greece's Finance Ministry in Athens. (YANNIS BEHRAKIS/Reuters/YANNIS BEHRAKIS/Reuters)
A Greek (R) and an EU flag fly over Greece's Finance Ministry in Athens. (YANNIS BEHRAKIS/Reuters/YANNIS BEHRAKIS/Reuters)

Euro zone services business declines, recession threat takes hold Add to ...

Euro zone services business contracted even more than initially reported in October as the debt crisis sapped new business and soured sentiment in an economy looking like it is headed back into recession, data showed on Friday.

The unresolved debt crisis, which has hammered businesses in the euro zone, took a turn for the worse on Thursday with a Greek political crisis threatening to topple the government and talk of Greece leaving the 17-nation union.

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In a bid to support the ailing economy, the European Central Bank surprised markets with a 25-basis point cut at its first policy meeting led by Mario Draghi.

Markit’s euro zone Services Purchasing Managers’ Index fell to 46.4 in October from 48.8 in September, its lowest reading since July, 2009, and markedly lower than an earlier flash reading of 47.2.

It was the biggest downward revision from the flash reading since November, 2008, when Europe was plunging into the darkest phase of the financial crisis.

The index stayed below 50 for the second month running, a level that divides growth from contraction, and survey complier Markit said conditions are unlikely to improve over the next few months as the threat of an imminent recession takes hold.

“The final PMI was even weaker than the earlier flash estimate, and suggests that the euro area contracted at a worrying pace at the start of the final quarter,” said Chris Williamson, chief economist at Markit.

The survey points to growth falling at a quarterly rate of 0.5 per cent and suggested it was highly probable the economy could contract in the fourth quarter.

“Any such upturn seems unlikely, however, given the deterioration in order books and companies’ increasing reluctance to hire extra staff in the uncertain economic climate,” Mr. Williamson added.

Service providers, who range from hotels to hairdressers, post and telecom, struggled in October. The new business index tumbled to 45.3 from 47.1, and hiring stagnated for the first time since April, 2010.

The gloomy economic outlook hurt business confidence with the index declining to a two-and-a-half year low.

Data released earlier showed services activity contracting in France, Spain and Italy, while Germany and Ireland saw only modest growth.

Activity in services firms lost steam in major Asian economies and slowed to a crawl in Britain, suggesting the global economy is weakening as the euro zone debt crisis rages on, key surveys released on Thursday showed.

The same trend continued in the U.S. services sector, which slowed modestly to its lowest level in three months.

Data released earlier showed growth in German services and factories had eased to its weakest during the current 27-month period of expansion after the slight rebound in services activity was negated by the first drop in manufacturing output since June, 2009.

The performances of France and Italy deteriorated sharply and Spain stayed stuck in recession with output falling sharply in both services and factories.

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