Germany's private sector growth continues to stall in April, weighed down by the steepest contraction in the manufacturing sector since July 2009, according to a preliminary reading released by Markit Economics on Monday.

Germany's economy continued to rest on a knife edge of recession in April, with modest service sector growth only just counterbalancing the escalating manufacturing downturn, Tim Moore, senior economist at Markit, said in a statement.

The preliminary estimate of the composite PMI, which measures performance of manufacturing and services, fell to a five-month low of 50.9 in April from 51.6 in March. Economists expected a reading of 49.3. A reading above 50 indicates expansion, while a reading below 50 suggests contraction.

Some resilience in the service sector kept the composite output index in the expansion territory, but manufacturers posted a drop in production for the first time since the beginning of 2012.

The manufacturing PMI sank sharply to 46.3 in April from 48.4 in March, while the services PMI edged up to 52.6 from 52.1 in March.

The overall manufacturing performance was the weakest since mid-2009 as shrinking export demand reverberated through the sector. While firms reported resilient export sales to Asian emerging markets and clients in the United States, weakness in trade flows closer to home put the brakes on the manufacturing sector.  

Meanwhile, lower workloads at German private sector companies contributed to a drop in unfinished business for the tenth consecutive month.

The latest reduction in backlogs of work was broad-based across the manufacturing and service sectors.

Alongside this evidence of spare capacity in April, private sector employment levels were reduced for the first time in just over two years. Although job shedding was only marginal, both the manufacturing and service sectors saw an end to their current runs of employment growth that stretched back to early 2010. 

April's drop in employment levels for the first time in over two years exacerbated the disappointment stemming from the latest survey, Moore said. A prolonged period of job market insecurity, alongside the ongoing squeeze on household purchasing power, would further diminish the ability of domestic consumption to keep the wheels of recovery moving.   

European stock markets fell. Germany's DAX dived 2.81 percent to 6,560.75. Britain's FTSE 100 shed 1.69 percent to 5,674.82 and France's CAC-40 lost 2.33 percent to 3,114.28.