EURO-AREA services and manufacturing contracted at a faster pace than economists forecast in February as the economy struggled to recover from the deepest recession in almost four years.

A composite index based on a survey of purchasing managers in both industries in the 17-nation currency bloc fell to 47.3 from 48.6 in January, London-based Markit Economics said in a report on Thursday.

Economists had forecast a reading of 49, according to the median of 22 estimates in a Bloomberg News survey. A reading below 50 indicates contraction. The data reinforce indications that the euro-area economy continued to contract in early 2013 after the recession worsened in the fourth quarter. The service industries in both Germany and France, the bloc’s two biggest economies, performed worse than projected this month, today’s data show. The European Central Bank forecasts the euro-area economy will contract 0.3 per cent this year.

The report “puts a dent in hopes that the region would emerge from recession in the first quarter,” said Ben May, an economist at Capital Economics Ltd. in London. “It supports our view that the improvement in the financial markets will not be enough on its own to kick-start an economic recovery.”

The euro was lower against the dollar after the data and traded at $1.3197 at 10:56 a.m. in Brussels, down 0.7 per cent on Thursday.

Services index: The euro-area services index fell to 47.3 in February from 48.6 in January, Markit said. The manufacturing gauge slipped to 47.8 from 47.9. Markit will publish the final reading for the factory index on March 1 and the services and composite measures on March 3.

In Germany, Europe’s biggest economy, the services measure fell to 54.1 in February from 55.7 last month, while the manufacturing gauge rose to 50.1, Markit said. France’s services gauge fell to 42.7 this month from 43.6 in January, while its manufacturing index increased to 43.6 from 42.9, today’s data showed.

“The information in business surveys currently reveals that the growth impetus in Europe is nearly exclusively coming from foreign demand, a growth engine that might still be hampered by an appreciating exchange rate,” said Peter Vanden Houte, an economist at ING Bank NV in Brussels. “And even if we assume that the euro’s appreciation is largely behind us, net exports alone are insufficient to lift growth above zero per cent in 2013.”

The economy will probably shrink 0.1 per cent this quarter before returning to growth in the three months through June, according to a Bloomberg survey of economists on February 15. Euro- area exports declined the most in five months in December as the currency’s gains made European goods less competitive abroad.

The euro has risen more than eight per cent against the dollar in the past seven months, moving as high as $1.3711 on February 1, the strongest since November 14, 2011.

Gradual recovery: European Central Bank President Mario Draghi said this week that the euro area should begin a gradual recovery later this year as monetary stimulus works its way through the economy.

While investor confidence has risen and European stocks have advanced, there remain signs some companies are struggling. European Union car sales fell to the lowest level for a January in at least 23 years, according to data this week. Registrations dropped 8.7 per cent to 885,159 vehicles last month, the Brussels-based European Automobile Manufacturers’ Association, said. That’s the lowest start to the year since the group began tracking sales in 1990.

“When you’re in the midst of the recession, and some would argue, a depression in some places like Greece, it’s hard to be optimistic,” Robert Savage, chief strategist at New York-based currency fund FX Concepts, said today in a Bloomberg Television interview. The PMI data “are highlighting the problem.”—Washington Post/Bloomberg

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