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Euro zone business growth slows as hiring slips

Paris, France
Mitch Diamond | Photolibrary | Getty Images
Paris, France

Growth in euro zone business activity slowed in October, surveys showed Wednesday, although the slowdown was less marked than originally thought.

The Markit Eurozone PMI Composite Output Index fell from a 27-month high of 52.2 in September to 51.9 in October. A reading over 50 marks expansion.

October's final reading, published Wednesday, was above the earlier flash estimate of 51.5, and marked expansion in the region for the fourth consecutive month.

(Read more: Pressure on ECB to cut rates after inflation shock)

This growth was led by the manufacturing sector which continued its recovery in October, with almost all countries posting growth in the sector. Monday's manufacturing PMI came in at 51.3 in October, slightly higher than the 51.1 recorded the previous month.

Business activity in the services sector also expanded – for the third month in a row – although at a slower pace than in September. October's services PMI, released Wednesday, slipped to 51.6 from September's 52.2.

Meanwhile, retail sales for the euro zone - also published Wednesday - fell more than expected in September. The volume of retail trade slipped 0.6 percent from August, lower the 0.4 percent decline forecast by analysts in a Reuters survey.

The data come ahead of the European Central Bank's governing council meeting on November 7, with a number of economists forecasting a quarter-point cut to the ECB's main interest rate.

(Read more: Manufacturing improves amid euro zone recovery)

Chris Williamson, Markit's chief economist, said October's figures signaled an easing in the already-modest pace of expansion in the euro zone, which could weigh on the central bank's meeting.

"The loss of momentum raises concerns that the upturn is faltering and piles further pressure on the European Central Bank to reinvigorate the recovery, especially as a drop in inflation to a near four-year low of 0.7 percent – well below the ECB's target rate of 2.0 percent – has raised concerns about deflation taking hold," Williamson said.

"The case for renewed stimulus is by no means clear-cut, however, as policymakers will note that the economy has shown a major turnaround so far this year."

The euro zone exited recession in the second quarter - with gross domestic product expanding by 0.3 percent from the first three months of the year. The data signal the end of the longest contraction in continental Europe in over 40 years, but despite this pick-up, the region's jobs market is struggling.

(Read more: EU Commission cuts euro zone growth forecasts)

The October PMIs revealed that employment had fallen again in the region - for the 22nd month in a row – as a result of weaker new-order inflows. The pace of falling payroll numbers also accelerated slightly from September.

It comes after warnings from the European Union's Commission Tuesday that euro zone unemployment would remain near its current record high – of 12.2 percent - for the next two years amid subdued economic expansion.

In its Autumn forecast, the Commission said it still expected the euro zone's gross domestic product (GDP) to shrink this year - by 0.4 percent, before recovering to grow by 1.1 percent in 2014. This forecast marked a slight downward revision from its earlier prediction of 1.2 percent growth next year, as a result of weaker private demand and investment.

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