Eurozone downturn slows slightly, PMI survey indicates

The slowdown in the 17 economies that share the euro eased slightly in December, according to a closely watched survey.

The composite survey of thousands of firms by Markit showed a continued contraction - but at a slower rate than in November.

Manufacturing in Germany - the eurozone's strongest economy - shrank for the third month in a row.

However, the figures were not as bad as many economists had expected.

"It's an encouraging sign that the index didn't fall any further. Quite what will happen henceforth remains highly uncertain," said Markit's chief economist, Chris Williamson.

The composite Markit Purchasing Managers' Index (PMI) rose to 47.9 for December from 47 in November. A number below 50 indicates a contraction.

The manufacturing index across the eurozone rose to 46.9 in December from 46.4 in November.

Banks all over the eurozone... are only alive at the moment thanks to the sheer scale of the money they've been able to borrow from the ECB and from their respective national central banks”

Services, which account for the bulk of the eurozone economy, also rose to 48.3 from 47.5.

Markit said better figures for France and Germany accounted for much of the improvement.

France's service industry expanded slightly in December, whilst the contraction in the country's manufacturing sector slowed.

Germany's manufacturing survey improved slightly from 47.9 to 48.1.

A eurozone index measuring new orders also showed a rise.

Although the PMI data indicated a slowdown in the rate of contraction, this will not be enough for the eurozone to avert a recession, according to economists.

"The eurozone suffered its worst quarter for two and a half years in the final three months of 2011 with PMI data suggesting the region's economy is likely to have contracted by 0.6%," said Mr Williamson.

That would be a bigger fall in economic output than many economists currently expect.

Improvements in France and Germany are expected to be offset by deep recessions in troubled economies such as Spain and Italy.

"Brutal austerity measures and a lack of strategy to regenerate growth indicates little prospect of the eurozone avoiding a recession," said Altaz Dagha, an economist at Westpac.