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Euro-Area Services Output Contracts More Than Estimated

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April 4 (Bloomberg) -- Euro-area services output contracted more than initially estimated in March as the economy struggled to pull out of the recession.

An index of services activity based on a survey of purchasing managers in the industry declined to 46.4 last month from 47.9 in February, London-based Markit Economics said today. That’s below an initial estimate of 46.5 published on March 21. A reading below 50 indicates contraction.

A composite index for the services and manufacturing industries fell to 46.5 from 47.9, matching the initial estimate, Markit said. The composite gauge has been below 50 for 14 straight months.

The euro area was plunged into turmoil again in March after finance ministers decided to impose losses on depositors at Cypriot banks in exchange for a 10 billion-euro ($12.8 billion) bailout. While the economy has contracted for five straight quarters, recent data suggest Germany may help lead the currency bloc to a recovery. Still, economists predict the European Central Bank probably will keep its benchmark rate at a record low 0.75 percent today.

“The recession has definitely eased, as there has been progress, led by Germany,” said Christian Schulz, senior economist at Berenberg Bank in London and a former ECB official. “But the political uncertainties will weigh on confidence, and thus growth. Now with Italy and Cyprus the recovery will be a bit more wobbly.”

Central Bank

The ECB will maintain its key interest rate at 0.75 percent at the Governing Council’s meeting in Frankfurt, according to the median of 56 economist estimates in a Bloomberg survey. The central bank has held its key rate at that level since July and just two of the economists polled forecast a cut this time. The decision is due at 1:45 p.m. in Frankfurt.

Concerns about the bailout for Cyprus last week helped push the euro to a four-month low against the U.S. dollar. The European currency, which traded as low as $1.2751 on March 27, the weakest since Nov. 21, was at $1.2791 at 9:18 a.m. in London, down 0.5 percent on the day.

With the debt crisis still plaguing Europe, the ECB last month cut its economic forecasts, predicting a euro-area contraction of 0.5 percent this year and growth of 1 percent in 2014. Draghi repeated the scenario that expansion would eventually return to Europe’s economy in the second half of this year. The ECB president will hold a press conference after today’s rate decision.

‘Increasingly Worried’

“The recession is deepening once again as businesses report that they have become increasingly worried about the region’s debt crisis and political instability,” Chris Williamson, chief economist at Markit, said in today’s report. “A stronger rate of decline was recorded in France and growth almost stalled in Germany, which suggests that the only source of bright light in an otherwise gloomy region has once again begun to fade.”

Euro-area unemployment has risen to an all-time high of 12 percent. A record 19.1 million people were out of work in February, up 33,000 from the prior month, data showed this week.

German chemical maker Lanxess AG last month forecast a bigger-than-estimated drop in profit for the current quarter on weak demand in the tire and automotive industries. Dublin-based Accenture Plc, the world’s second-largest technology-consulting company, last week forecast quarterly sales that fell short of analysts’ estimates.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

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

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