By Daniel Hunter

The Markit Eurozone PMI Composite Output Index rose to a three-month high in May, but remained deep in contraction territory. According to the flash estimate, based on approximately 85% of total replies, the Eurozone PMI rose from 46.9 in April to 47.7 in May, signalling an easing in the rate of contraction for the second consecutive month.

However, the latest reading is merely in line with the average seen during the first quarter, a period when the region’s economy contracted 0.2%. The ongoing downturn signalled by the PMI therefore suggests that the euro area’s recession will have dragged on into a seventh successive quarter in the second quarter of 2013.

The downturn remained broad based, but both main sectors saw an easing in the rate of decline. Manufacturing output fell at the slowest rate since January, while service sector activity declined at the weakest pace since February.

Although moderating, the downturn in business activity looks likely to persist into June, due to an ongoing decline in demand for goods and services across the region. New business fell sharply again, down for the twenty-second successive month with the rate of unchanged on that seen in April. Although manufacturers reported the smallest drop in new orders for three months, service sector companies saw the rate of decline accelerate again, having reported an easing in April.

Strong divergences persisted between the region’s two largest economies. Business activity declined for a second successive month in Germany, but the downturn was only very marginal, suggesting the economy is stabilising again. A steep rate of decline meanwhile continued to be reported in France, unchanged on that seen in April, though less severe than seen during the first quarter.

Elsewhere across the region output fell at the slowest rate since July 2011, easing in both manufacturing and services.

Employment fell for the seventeenth consecutive month, with the rate of job losses rising to the highest since February. Increasing numbers of firms sought to reduce capacity in line with deteriorating order books. Backlogs of work have now fallen continually for almost two years, dropping in May at a similar steep rate as seen throughout the year so far.

Employment fell in both manufacturing and services, with hiring even being scaled back in Germany, where headcounts fell for the first time since January. The rate of job cutting eased in France but nevertheless remained severe. The rate of job losses seen across the rest of the euro area eased to an 11-month low.

“The eurozone’s second recession in five years looks set to drag on into a seventh successive quarter. Although the Eurozone PMI rose for a second successive month in May, the survey remains firmly in contraction territory and indicates that the economy is likely to contract in the second quarter at a similar rate to the 0.2% decline seen in the first three months of the year," Chris Williamson, Chief Economist at Markit said.

“Weakness remains broad-based, with Germany stagnating, France contracting steeply and the rest of the region also clearly entrenched in an ongoing downturn of worrying severity, although some signs of the recession easing in the periphery were seen in May.

“Signs of deflationary pressures were also evident, highlighting just how weak demand is at the moment. Both manufacturers and service providers cut their prices in the vain hope of stimulating sales.

“The ECB’s quarter-point cut in interest rates seems to have done little to inspire confidence that the economy will start to pick up again. In fact, expectations about the year ahead deteriorated again in the service sector, suggesting recovery remains a long way off still and that policymakers need to do more to stem the downturn and revive growth.”

Join us on
Follow @freshbusiness