By Marcus Leach

The Markit Manufacturing Purchasing Managers' Index (PMI) index has revealed that activity in the eurozone shrank in August for the first time in over two years.

The PMI index measure for the eurozone fell to 49.7 from 50.4 in July, with a reading below fifty signalling a contraction in the sector.

Services output grew only modestly, posting the smallest increase in activity since September 2009, as manufacturing output stagnated, showing no growth for the first time in just over two years.

Output across both sectors rose only very modestly in Germany, showing the weakest rate of expansion since the country’s recovery began two years ago.

A slowdown to near-stagnation was seen in the German service sector while manufacturing output growth gained momentum, but nevertheless posted the second-weakest reading in the past 23 months.

Growth picked up in France, but was up only slightly from July’s 23-month low. The French service sector saw growth recover to the pace seen in June, but manufacturing output fell for the first time since June 2009.

Outside the Eurozone’s two largest economies output fell for the third successive month, though the rate of decline eased slightly, reflecting a moderation in the rate of service sector contraction. Manufacturing output fell at the fastest rate for two years.

"The eurozone economy grew only marginally again in August, suggesting that recent months have seen the weakest expansion for two years," said Chris Williamson, Markit's chief economist.

"The data raise the prospect that economic growth in the third quarter could be even slower than the disappointing 0.2% rise seen in the three months to June.

"Most worrying is the near-stagnation in Germany, which suggests that the region's main engine of growth has stalled."

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