Eurozone manufacturing contracted in March at the fastest rate in three months, data showed Thursday, dashing hopes of an economic recovery.

A composite index based on a survey of purchasing managers from both industries fell to 46.5 from 47.9 in February, according to Markit Economics.

It dropped more than the average 48.2 reading analysts had forecast.

The region's PMI has been less than 50, which indicates a contraction, for 20 consecutive months, Markit said.

The decline signalled an acceleration in the rate of contraction of business activity for the second consecutive month.

Business activity has fallen continually since September 2011, with the exception of a marginal increase in January last year.

The new orders index is in the red for the third consecutive month and the employment index turned in its 15th consecutive month of contraction in March.

The data follows a forecast by European Central Bank (ECB) that the economy will contract 0.5% this year.

ECB President Mario Draghi has said Europe will begin to recover later in 2013.

However, the financial crisis in Cyprus has sparked fears it may put a spanner in the works for the Eurozone's efforts to emerge from a recession.

"Instead of the Eurozone economy stabilising in the second quarter, as many - including the ECB - have been hoping to see, the downturn could therefore intensify in coming months," said Chris Williamson, Chief Economist at Markit.

"The deteriorating situation in Cyprus also raises the prospect of business and consumer confidence falling further across the single currency area, and possibly dragging the PMI [purchasing managers index] numbers down further in April."

France saw the steepest downturn in business activity since March 2009, rounding off the worst quarter for four years, falling from 43.1 in February, to 42.1 in March.

Europe's biggest economy, Germany, fell to 51.0 in March from 53.3 in February, the lowest reading for three months.

RD

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