Euro Zone Economy Shrinks In December

Purchasing managers index for manufacturing in the 15-nation single currency zone slumped to 34.5 in December, signaling a sharp contraction.

LONDON (AP) -- The euro zone economy contracted at a sharper pace in December, a closely watched survey showed Tuesday, suggesting the European Central Bank is likely to cut interest rates again early next year to prevent the economy from sliding deeper into recession.

The preliminary estimate of the purchasing managers index (PMI) for the services sector in the 15-nation single currency zone fell to 42.0 in December from 42.5 the previous month. December's preliminary estimate is the lowest in the survey's 10-year history.

Meanwhile, the equivalent manufacturing PMI slumped to 34.5 in December from 35.6 in November. November's reading was the lowest in the survey's 11-year history.

The composite reading, which combines both PMIs, dropped to 38.3 from 38.9. Again this was the lowest in the survey's 10-year history.

Any reading below 50 indicates contraction and the bigger the difference from 50 the greater the contraction.

"It is becoming increasingly clear that the downside risks to our forecast for a 1 percent fall in euro zone gross domestic product next year are growing," said Ben May, European economist at Capital Economics.

The European Central Bank meets again early in January and is expected to cut its benchmark interest rate further from the current 2.50 percent.

Final numbers for December are published at the start of the new year.

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