The Eurozone recession could be deeper and more severe than first anticipated after disappointing manufacturing data from Germany help drag economic activity lower around the region this month.

The composite reading of the Markit Eurozone Output Index slowed to 46.5 in March, according to the benchmark survey, from 47.9 in February. Manufacturing activity around the seventeen members of the European single currency slid to three-month low of 46.6 while its reading of the services sector fell to a five-month low of 46.5, well below the level of 50 which generally separates growth from contraction. The data suggest the Eurozone economy likely shrank 0.3 percent in the first three months of the year, Markit said, and that the pace of decline could be quickening.

"Instead of the Eurozone economy stabilising in the second quarter, as many - including the ECB -have been hoping to see, the downturn could therefore intensify in coming months," said Markit's chief economist Chris Williamson. "The deteriorating situation in Cyprus also raises the prospect of business and consumer confidence falling further across the single currency area, and possibly dragging the PMI numbers down further in April."

Earlier readings showed service sector activity in France sank to a four-year low of 41.9, well shy of the 44.0 reading forecast by economists polled by Reuters. The manufacturing sector reading also touched a four-year low of 43.9.

Perhaps even more concerning was the surprise decline from Germany, Europe's largest economy, where the manufacturing sector reading fell to 48.9 from 50.3 in February and the services sector measurement slipped to 51.6 from a prior 54.7.

"France saw the steepest downturn in business activity since March 2009, rounding off the worst quarter for four years, while Germany looks set to have enjoyed reasonable if unspectacular growth," said Williamson. "However, even Germany showed worrying signs of growth fading in March, driven by a return to contraction of its manufacturing sector."

The German data also seems to defy an earlier report from the ZEW Centre for European Economic Research in Mannheim, which said its key index of investor and analyst expectations for the economy rose to a three-year high of 48.5 points in March from a reading of 48.2 points in February. The index of current conditions also advanced to 13.6 points from 5.2 points in the previous month, the institute said in a statement published Tuesday on its website.

The difference was highlighted earlier this month by European Central Bank President Mario Draghi during his monthly press conference in Frankfurt, where he noted "a dichotomy between the hard data, which ... are on average disappointing, and a broad indicator of soft data, of survey data, of sentiment data, which almost uniformly are positive."