Business activity in the eurozone shrank in April for the first time in 16 months, as the war in the Middle East pushed energy prices up and disrupted global supply chains, a closely watched industry survey showed Thursday.
The Flash Eurozone purchasing managers' index (PMI) published by S&P Global, an important gauge of the overall health of the economy, registered a figure of 48.6 this month, down from 50.7 in March.
A reading above 50 indicates growth, while a figure below 50 shows contraction.
"The eurozone is facing deepening economic woes from the war in the Middle East, presenting a major headache for policymakers," said S&P chief business economist Chris Williamson.
"The conflict has pushed the economy into decline in April, while driving inflation sharply higher."
The decline in output was driven by the service sector, which recorded the steepest pace of decline in more than five years.
Manufacturing production instead continued to rise, expanding at the fastest rate since August.
But this was partially down to customers placing extra orders to build stocks and secure purchases ahead of possible future price rises and supply shortages, the survey said.
The fall in business activity was broad-based across the eurozone, with both Germany and France, the 20-country single currency area's two biggest economies, posting contractions.
"In this environment, the ECB once again has the unenviable task of deciding whether to raise interest rates in the face of the worrying inflation picture, or whether this price spike will prove temporary and its focus should instead be on the need to prevent the economy sliding into a deeper downturn," said Williamson.
Analysts have raised their bets on the Frankfurt-based European Central Bank (ECB) hiking interest rates as soon as this month to keep inflation in check.
