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European Manufacturing, Services Output Shrank Last Month

Euro-region services and manufacturing output contracted more than initially estimated in April, adding to signs of a deepening economic slump.

A euro-area composite index based on a survey of purchasing managers in both industries dropped to 46.7 from 49.1 in March, London-based Markit Economics said today. That’s the fastest rate of decline since October and below an estimate of 47.4 published on April 23. A reading below 50 indicates contraction.

After shrinking in the final three months of 2011, Europe’s economy probably slipped into recession in the first quarter as the region’s worsening debt crisis forced governments from Spain to Italy to step up spending cuts. European Central Bank President Mario Draghi yesterday said the economic outlook has become “more uncertain” and left open the option of further stimulus after keeping the benchmark interest rate at 1 percent, already a record low.

“It appears that the euro-zone economy is headed for a third successive quarter of gross domestic product contraction,” said Howard Archer, chief European economist at IHS Global Insight in London. “Indeed, there is a growing risk that the rate of euro-zone contraction could actually deepen in the second quarter.”

The euro remained lower against the dollar after the report, putting it on track for its biggest weekly drop in a month. The common currency was at $1.3134 as of 9:59 a.m. London time and has dropped 1 percent since April 27.

Stocks Drop

European stocks fell as investors await a U.S. payrolls report later today and elections in France and Greece this weekend. The Stoxx Europe 600 Index (SXXP) slipped 0.8 percent.

A gauge of euro-region manufacturing fell to 45.9 in April from 47.7 the previous month, Markit said earlier this week. A measure of services dropped to 46.9 from 49.2, it said today.

In Germany, Europe’s largest economy, a services index rose less than initially estimated, to 52.2 in April from 52.1 in March. A gauge in France plunged to 45.2 from 50.1, while Spain’s measure dropped to 42.1 from 46.3. The Italian index also declined.

Chris Williamson, chief economist at Markit, said the euro- area economy probably contracted at a quarterly rate of 0.5 percent in April, “extending the downturn for a third successive quarter.”

‘Even in Germany’

“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,” Williamson said in a statement. The ECB’s stimulus measures don’t seem to have “had a lasting impact on the real economy.”

The ECB, which has injected more than 1 trillion euros ($1.3 trillion) into the banking system to fight the crisis, said yesterday that risks to the economic outlook remain on the downside.

Adding to signs of a deepening recession across Europe, euro-region economic confidence dropped in April to the lowest since December and the jobless rate rose to a 15-year high of 10.9 percent in March. German unemployment unexpectedly increased last month, and the U.K. slipped into its first double-dip recession since 1975.

Renault SA (RNO), France’s second-largest automaker, said on April 25 that first-quarter revenue dropped 9 percent on declining European demand. The Boulogne-Billancourt, France- based company said the “fall in the European market is expected to slow in the second quarter.”

‘We Have a Problem’

“If indicators continue to worsen, we have a problem,” said Christoph Weil, a senior economist at Commerzbank AG in Frankfurt. “If periphery countries continue to remain weak, it could weigh on the economic development. The euro-region economy may only return to growth in the third quarter.”

The Reserve Bank of Australia today lowered its growth and inflation forecast as weak job and housing markets keep price gains in check. In the U.S., the world’s largest economy, the jobless rate probably held at 8.2 percent last month, according to a Bloomberg survey ahead of today’s report.

China’s purchasing managers’ index for the services industry was at 54.1 last month, up from 53.3 in March, according to the last report by HSBC Holdings Plc and Markit.

Some companies are relying on faster-expanding markets to bolster sales as Europe remains mired in recession. Lafarge SA (LG), the world’s biggest cement maker, today reported first-quarter earnings that beat analyst estimates on demand in emerging markets such as Morocco and Brazil. Linde AG (LIN), the world’s second-biggest maker of industrial gases, also beat estimates with first-quarter profit, helped by China and the U.S.

The European Union’s statistics office is scheduled to release a preliminary estimate for euro-area gross domestic product in the first quarter on May 15.

To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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