Recession spreads to services

Recent data suggest that the euro-zone economic downturn is gathering pace. Not only do the latest business surveys point to further steep falls in industrial output, but they also indicate that service sector output could soon begin to decline on an annual basis for the first time since the data began in 1996. Further sharp falls in inflation may prompt a pick-up in household spending next year. But the extent of the recent slide in business surveys suggests that there will be further sharp falls in euro-zone output and that the downside risks to our forecast for GDP to fall by 1% next year appear to be increasing.