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Euro zone business growth hit by falling demand

Photographer | Collection | Getty Images

Growth in euro zone business activity unexpectedly slowed in October, surveys showed Thursday, raising questions about the strength of the region's economic recovery.

Markit's flash purchasing managers' index (PMI) revealed that the euro zone's composite reading fell from 52.2 in September - a two-year high - to 51.5 in October, worse than forecast in a Reuters poll. Economists had expected the PMI reading - where a figure above 50 denotes expansion - to come in at 52.5.

Rob Dobson, senior economist at Markit, told CNBC the dip in October's reading was disappointing.

(Read more: Euro zone in it for the 'long haul' as unemployment flat)

"However, I wouldn't place too much emphasis on one month of data," he said. "We're seeing broad-based growth... It's going to be an uneven and fragile recovery and that's what we're seeing here."

Howard Archer, chief European and U.K. economist at IHS Global Insight, said the surveys indicated a loss of momentum in October.

"This fuels concern that the euro zone still faces a hard slog in developing recovery and remains vulnerable to setbacks," he said in a note.

October's PMI data also revealed a dramatic slowdown in the region's dominant services sector, which fell to 50.9 in October from 52.2 in September. Meanwhile manufacturing growth ticked up to 51.3 this month, from 51.1 in September.

(Read more: Draghi: Bank stress tests 'just the start')

Archer said the retreat in the composite reading was primarily due to to slower services activity, which outweighed a limited pick up in manufacturing output.

The euro zone exited recession in the second quarter - signaling the end of the longest contraction in continental Europe in over 40 years - but its economic growth is expected to be sluggish at least until 2015.

"Euro zone recovery still looks like being a slog, as the upside for domestic demand in the euro zone is likely to remain constrained by a number of factors," Archer added. "Consequently, euro zone growth seems set to pick up only slowly and will remain vulnerable to setbacks on any shocks."

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