Eurozone core economies struggle

Manufacturers were the driving force behind the bloc's recovery from the last recession, but the downturn in factory activity that began in smaller periphery countries has now engulfed core members Germany and France.

"The manufacturing sector opened the final quarter of 2012 on a disappointing footing, as the downturn in the sector gathered pace," said Chris Williamson, chief economist at data collator Markit.

"The national data also paint a bleaker picture. The ongoing weakness of the periphery is being combined with hollowing out of the previously strong core of France and Germany."

Markit's Eurozone Manufacturing Purchasing Managers' Index (PMI) fell to 45.4 in October from September's 46.1. The October figure was just up from an earlier reported flash reading of 45.3. The index has been below the 50 mark that divides growth from contraction since August 2011.

The manufacturers' output index sank to 45.0 from 45.9.

Earlier data from Germany, Europe's largest economy, showed its manufacturing sector shrank for the eighth month and French figures showed a decline in all but one of the last 15 months.

Ben May, economist at Capital Economics, said the situation in the core economies of the eurozone was worsening.

"Rather than the strength in the core dragging the periphery out of recession it appears more likely that the core will follow the periphery into recession," he said.

In Spain, likely to become the next country to be bailed out by the European Union, the pace of decline accelerated. The picture was similar in Italy.

Flagging growth prospects for the eurozone's biggest economies will prompt the ECB to ease monetary policy more in the next few months and cut interest rates to a new record low of 0.5 percent, a Reuters poll showed on Thursday.

The 17-nation bloc's economy almost certainly slipped back into recession last quarter and may have to wait until 2014 before it recovers from its decline this year, with only feeble growth expected next year.

Europe is expected to remain the biggest drag on the world economy next year as its sovereign debt crisis rumbles on.

Last month the eurozone sank further into decline as output of the manufacturing and services sectors combined dropped at the fastest rate since June 2009. Telegraph