Euro-area services and manufacturing output contracted for a sixth straight month in July, indicating the economy may have slipped into a recession. A composite index based on a survey of purchasing managers in both industries in the 17-nation euro area was unchanged at 46.4, the same level as in June, London-based Markit Economics said today in an initial estimate. That’s in line with the median of 17 estimates in a Bloomberg News survey of economists. A reading below 50 indicates contraction. The purchasing-managers index is the first euro-area indicator for July to suggest that the bloc’s economy may be in a recession, defined as two consecutive quarters of contraction, after the worsening debt turmoil forced Spain and Cyprus to seek external aid last month. The euro has declined 8 percent against the dollar over the past three months, reflecting investor concern about the fiscal crisis and signs of a deepening slump. “The euro-area downturn showed no signs of letting up at the start of the third quarter,� Chris Williamson, Markit’s chief economist, said in the report. “The downturn is being led by an increasingly severe slump in manufacturing, where output is falling at a quarterly rate of around 1 percent.� The euro was little changed against the dollar after the report, trading at $1.2108 at 9:09 a.m. in London. A gauge of euro-area manufacturing fell to 44.1 this month from 45.1 in June, the report showed. An indicator of services output advanced to 47.6 from 47.1, Markit said. Fiscal Health European leaders have struggled to restore investor confidence in the region’s fiscal health since Greece became the first of five nations to seek aid from international lenders. Last month, a new push for enhanced joint budgetary control and closer financial-sector integration was overshadowed by Spain and Cyprus both asking for assistance. The International Monetary Fund said earlier this month that the euro-area economy may shrink 0.3 percent this year before expanding 0.7 percent in 2013. That compares with the European Central Bank’s June forecasts of a contraction of about 0.1 percent this year. With at least six euro-area states already in a recession, Germany’s expansion helped prevent the 17-nation economy from shrinking in the first quarter. The German economy, Europe’s largest, has since shown signs of slowdown, adding to concerns of a euro-area recession. Germany investor confidence fell for a third month in July. Holding Back The European Union’s statistics office will release a first estimate of second-quarter gross domestic product on Aug. 14. ABN Amro estimates that GDP declined 0.4 percent in the second quarter and will shrink 0.2 percent in the third quarter. China’s purchasing managers’ index released today by HSBC Holdings Plc and Markit rose to 49.5 in July from 48.2 in the previous month. If the preliminary reading is confirmed, that would be the highest since February. With global demand cooling and consumers holding back spending, European companies may be forced to continue to cut costs and eliminate jobs over the coming months. Euro-area unemployment rose to 11.1 percent in May, a euro-era record. Puma SE (PUM), Europe’s second-largest sporting-goods maker, on July 18 cut its 2012 sales and profit forecasts and said it will close some stores and may also eliminate jobs after business slowed in the first half of the year. The slowdown was particularly noticeable in Europe, the Herzogenaurach, Germany- based company said. “Uncertainty surrounding the euro crisis might very well flare up again once in a while, as policy makers are moving in the direction of a fundamental solution for the crisis only at a snail’s pace,� Aline Schuiling, an economist at ABN Amro Bank NV in Amsterdam, said in an e-mailed note before today's report. “All in all, there seem to be very limited prospects for the economy to grow in 2013.� To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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