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Eurozone business slowdown puts fragile recovery at risk

The giant Euro sign outside European Central Bank headquarters in Frankfurt, Germany on March 7, 2013

Eurozone business activity slowed again in November, highlighting the dangers of a faltering recovery as the bloc struggles out of a record recession, a key survey showed on Thursday.

Markit Economics, which compiled the report, said the figures suggested "momentum is being lost again" and warned that policymakers might have "to do more to prevent the eurozone from slipping back into another recession."

The Eurozone Composite Purchasing Managers Index (PMI) for November fell to 51.5 points from 51.9 in October, hitting a three-month low and short of forecasts for 52 points.

Although activity in November remained above the 50-points line indicating growth, this was the second monthly fall in a row for the closely-watched leading indicator, after October's slip to 51.9 from 52.2 in September.

Among the most worrying details, activity in France, the second-biggest economy in the eurozone, shrank in November for the first time for three months, Markit said.

Recent reports from the European Commission, the Organisation for Economic Cooperation and Development, and the Standard and Poor's rating agency have all expressed deep concern at the French outlook.

French Finance Minister Pierre Moscovici said meanwhile in Paris that the "recovery is real but it is also fragile and we must continue the work of reform."

The eurozone grew by 0.1 percent in the third quarter, down from 0.3 percent in the second when the single currency bloc finally escaped a record 18-month recession.

The November PMI report confirms continued weakness in an economy desperate for growth to mend some of the debt crisis damage, especially record unemployment running at more than 12 percent.

Markit said that other PMI measures reflected similar softness but manufacturing, a relatively small part of the wider economy, held its own.

The Eurozone Services PMI for November fell to 50.9 points from 51.6 in October while the Eurozone Manufacturing PMI edged up to 51.5 from 51.3.

Chris Williamson, Markit chief economist, said recent data suggested the economy will chalk up "a very modest 0.2-percent expansion" for the fourth quarter.

The November downturn also shows the European Central Bank was right to cut interest rates to a record low 0.25 percent at its last meeting, he said, pointing to "signs that deflationary forces may be gathering."

Many commentators have voiced growing concern as inflation has fallen that prices might actually begin to drop in real terms with the risk of setting off a downward spiral that would also hit output.

Williamson noted that powerhouse Germany once again saved the day -- with activity rising to 54.3 points from 53.2 in marked contrast to France which fell to 48.5 from 50.5.

France showed "further signs of being the ?sick man of Europe? with output showing a renewed decline and raising the risk (it) could fall again in the fourth quarter, constituting a renewed recession," he said.

Growth outside the eurozone's two biggest economies meanwhile "slowed to near-stagnation," he said.

Howard Archer of IHS Global Insight said the latest figures were "extremely disappointing and worrying."

The loss of momentum "reinforces concern that the eurozone still faces a hard slog in developing recovery and remains vulnerable to setbacks," Archer said.

"The only good news ... was German activity picking up to a 10-month high," he said, noting that "it was particularly worrying" to see French manufacturing and services shrink.

As for the outlook, Archer said on balance, the eurozone "is unlikely to relapse back into recession (but) recovery will remain tortuously slow."

Other analysts were equally downbeat.

The November Composite PMI report "suggests that the region's anaemic recovery may be losing more steam," Capital Economics said, estimating overall fourth quarter growth at just 0.1 percent.

"In all ... the (report) provides further evidence that the eurozone recovery has virtually ground to a halt," it said.

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