Europe News

Euro zone recovery just got a 'reality check'

The euro zone's economic recovery could be at risk of losing momentum, surveys from the region's services and manufacturing sectors indicated Thursday.

Markit's composite flash April Purchasing Managers Index fell to 53.5 in April from 54.0 in March, below analyst expectations in a Reuters' poll for a reading of 54.4.

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The headline index, which remained above the 50-mark that is consistent with expansion, is based on surveys of thousands of companies and viewed by analysts as a good gauge of growth.

"Disappointing overall but not disastrous," said Howard Archer, chief European economist at IHS Global Insight, in a note. "Euro zone manufacturing and services expansion unexpectedly moderated in April according to the purchasing managers, perhaps providing a reality check on the strength of the region's upturn."

Archer added that it remains to be seen whether the slowdown in business growth was mostly a correction after four months of improvement, or a sign that a pick-up in euro zone economic activity was levelling off.

Earlier on Thursday, Markit's German flash composite PMI fell to 54.2 in April from an eight-month peak of 55.4 in March. France's composite PMI, meanwhile, fell to 50.2 from 51.5 in March.

"We also had the reading from France and the French manufacturing and services PMI data has done what it does the best - disappoint investors to their core," said Naseem Aslam, chief market analyst at AvaTrade, in a note.

Indeed, the tone of the PMI data helped weigh down European shares, with the pan-European STOXX 600 index down 0.8 percent in early trade.

Also undermining sentiment was news earlier in the day that the flash HSBC China PMI for April fell to a one-year low of 49.2 in April from 49.6 last month, remaining in contraction territory. U.S. PMI data is due out later in the day.

Read More China's factory activity falls to one-year low

Will Greece leave the euro?
Will Greece leave the euro?

Back in Europe, analysts said concerns about a potential debt default in Greece may also be weighing on sentiment and activity in the manufacturing and services sector.

On Tuesday, a closely-watched survey from Germany's ZEW Institute showed investors sentiment unexpectedly fell in April.

Read More Earnings deluge could support new index highs

"April's fall in the euro-zone composite PMI suggests that fears over Greece might already be starting to dampen growth in the region," Capital Economics European Economist Jessica Hinds said in a note.

Analysts said that while lower oil prices and the weak euro are still positive for the euro zone economic outlook, any fallout from Greece was a risk.

"Looking ahead, there is a clear risk that the composite PMI falls further as concerns about the situation in Greece and a possible euro exit intensify, raising the threat of a renewed economic slowdown in the euro-zone,"said Hinds.

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