The German economy slowed to “near stagnation” in March 2013, while France’s recorded its biggest contraction for four years, according to a Markit survey.
The Markit composite purchasing managers’ index (PMI), which measures both the manufacturing and services sectors, declined to 50.6 in Germany last month, from 53.3 in February.
Any figure above 50 indicates growth.
France’s reading fell to 41.9 points, its worst since March 2009.
For the eurozone as a whole, the index fell to 46.5 from 47.9 in February.
The Markit composite PMI, which measures both the manufacturing and services sectors, declined to 50.6 in Germany last month, from 53.3 in February
Chris Williamson, chief economist at Markit, said the latest data painted a gloomy picture.
“The [eurozone] recession is deepening once again as businesses report that they have become increasingly worried about the region’s debt crisis and political instability,” Chris Williamson said.
“The unresolved election in Italy was commonly cited as a key factor clouding the economic outlook in March, and the botched bail-out of Cyprus could well filter through to a further worsening of business sentiment across the region in April.”
Chris Williamson added that the weak showing from Germany “suggests that the only source of bright light in an otherwise gloomy region has once again begun to fade”.
Germany’s index reading was the worst in the country for three months.
Standard & Poor’s has cut Spain’s credit rating and warned of risks to come.
S&P cut Spain two notches to BBB+, warning that the country could have to take on more debt to support its banking sector.
The ratings agency has also placed Spain on negative outlook, meaning there is a risk of further downgrades to come.
S&P predicts the Spanish economy will shrink by 1.5% this year, having previously forecast 0.3% growth.
In 2013 it expects the economy to contract 0.5%, having previously predicted 1% growth.
Standard & Poor's has cut Spain's credit rating and warned of risks to come
S&P also gave a damning assessment of the situation in the rest of Europe, saying: “In our view, the strategy to manage the European sovereign debt crisis continues to lack effectiveness.
“We think credit conditions, and hence the economic outlook for Spain, could now deteriorate further than we anticipated earlier this year unless offsetting eurozone policy measures are implemented to support investor confidence and stabilize capital flows with the rest of the world.”
The agency suggested such measures could include a pooling of resources and obligations between eurozone countries and policies to harmonize wages across the currency bloc.
But there were some positive comments about the measures taken by the government.
“Despite the unfavorable economic conditions, we believe that the new government has been front-loading and implementing a comprehensive set of structural reforms, which should support economic growth over the longer term,” S&P said.
“In particular, authorities have implemented a comprehensive reform of the Spanish labor market, which we believe could significantly reduce many of the existing structural rigidities and improve the flexibility in wage setting.”
But S&P concludes that the labor market reforms will not create employment in the near term and predicts that “the already high unemployment rate, especially among the young, will likely worsen until a sustainable recovery sets in”.
Spain has Europe’s highest rate of unemployment at 23%, with more than half of young people out of work.