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Figures indicate European economy is "dropping back into recession"

A new report also shows contraction across the eurozone economy is filtering through to the labour market.

Image: Michael Probst/AP/Press Association Images

A REPORT FROM a market research group shows the economic downturn in the eurozone has extended into its seventh month.

The Markit Purchasing Managers’ Index (PMI) showed a fall in output in both manufacturing and service sectors last month with a decline in total activity spread across the entire eurozone.

While the rate of contraction in France eased, it gathered pace in Germany and there were further marked declines in output outside of the ‘big-two’ economies.

The latest decline in overall output mainly reflected a further drop in new orders with incoming business falling for the thirteenth consecutive month.

Commenting on the data, senior economist at Markit Rob Dobson said the report “reinforces the prevailing view of the economy dropping back into recession in the third quarter of 2012″.

New export orders declined for the fourteenth month running with the rate of reduction the sharpest since last November. The report said this reflected not only the ongoing weaknesses of the eurozone market but also a softer rate of global economic expansion.

Figures show the downturn in the eurozone economy has filtered through to the labour market with staffing levels falling again in July.

Despite the declines, service sector costs continued to rise at a solid rate in August with the rate of inflation edging up to a three month high. Rising input prices were generally linked to increased food, oil and transport costs.

Confidence levels amount service providers showed a modest improvement in August with business optimism in France rising sharply while German service providers still expect activity to be lower in one year’s time.

Dobson said considering these results from July and August,  it would take a “substantial bounce” in September to change the outlook for the third quarter.

Read: Eurozone economies shrank in second quarter of 2012>

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