Europe heads for recession as private sector nosedives

Europe is plunging into recession as politicians row over plans to tackle its sovereign debt crisis ahead of Wednesday's key summit, alarming new figures showed today.

Financial information firm Markit's flash eurozone survey raised the stakes for Europe's leaders as the region's private sector shrank at the quickest pace since July 2009 in October. France's economy plunged while German manufacturing firms saw their first drop in production for two years.

Markit's measure of manufacturing and services activity in the 17 euro nations, where a score over 50 signals growth, fell to 47.2 in October, much worse than expected. Chief economist Chris Williamson warned: "Companies are bracing themselves for the situation to continue to deteriorate."

Most forecasters are now expecting Europe to be in recession by the end of the year, even if the region manages to achieve sluggish growth between July and September. ING Bank economist Peter Vanden Haute warned: "All in all this is a miserable report, highlighting the fact that the eurozone is falling into recession again."

Howard Archer, chief economist at IHS Global Insight, predicted that the eurozone will shrink for six months over the winter with growth at a virtual standstill next year. He warned: "We see eurozone GDP growth limited to just 0.3% in 2012, with serious downside risks unless genuine progress is made in tackling the sovereign debt crisis."

Despite the worsening plight of the eurozone, political leaders are still split over plans to expand the region's 440 billion (£385 billion) bailout pot, with Germany blocking France's calls to use the resources of the European Central Bank in order to boost the fund's firepower.

Citigroup's Jurgen Michels said: "It seems progress was made over the weekend to get to a comprehensive package, but it is unlikely to be a bold one."

A broad consensus on a 100 billion recapitalisation of Europe's weaker banks to cope with bigger losses on struggling Greek debt emerged over the weekend, boosting bank shares today.

Banks are said to be pushing for smaller writedowns although German chancellor Angela Merkel has put the size of the writedown of Greek debts at between 50% and 60%, compared with the 21% hit agreed in July's bailout. Details will not be revealed until Wednesday.

The FTSE 100 today reached its highest point since early August, adding 18.03 to 5506.68.

But analysts warned markets are running ahead of themselves with so few concrete proposals on the table.

Charles Stanley's Jeremy Batstone-Carr said: "The summit so far has signally failed to deliver on hard proposals."