Markit Economics' service sector PMIs (purchasing managers indices) showed that the recession in Europe continued during the month of September.

Although the final data for the Eurozone Services Business Activity Index did inch up to 46.1 from the flash reading of 46.0, it decreased from the prior month's 47.2. Any reading below 50 means the sector is contracting.

At the same time, the Markit Eurozone PMI Composite Output Index (which reflects a weighted-average combination of the manufacturing and services sector in the region) hit a four-month low at 46.1. Although also ahead of the flash estimate of 45.9, it still slipped from August's reading of 46.3. It's important to remember that there is a tight link between this composite data and the Eurozone's GDP.

Data points from the most import member states reveals some important facts:

Germany managed to improve its service sector reading to 49.7 from August's 48.3. However, the flash reading for September was 50.6. In any case, the worst news is the largest loss of employment since May 2009.

In France, the services PMI hits an 11-month low at 45.0, falling from the previous 49.2 and from the preliminary reading of 46.1. Its composite index hits a 42 month low.

In Spain, the service sector PMI dropped to 40.2 from the prior 44.0. This is the southern country's largest drop since November 2011.

In Italy however, the same index registered its highest reading in the last eight months as it rose to 44.5 from the prior 44.0. Nevertheless, the country also registered its largest drop in employment since June 2009.

"The final Eurozone PMI came in slightly higher than the flash estimate but still signalled one of the steepest monthly downturns seen over the past three year," says Markit's chief economist Chris Wiliamson who also warns that "it seems inevitable that the region will have fallen back into recession in the third quarter. After falling by 0.2% in the second quarter, a steeper fall in output is likely for the third quarter."

Analysis and market impact:

The data is extremely negative as it shows Europe slumping deeper into recession at the end of the third quarter, say analysts at Digital Look.

"Also, the outlook for the fourth quarter is even more dismal after taking the negative employment indicators into account. Without a doubt, 2012 is not going to go down as a good year.

"However, we do expect the economic activity to improve next year thanks to the ECB stimulus and the decreasing uncertainty surrounding the outcome of the European sovereign debt crisis," they said.

FM

Related share prices