February 3, 2010 / 9:58 AM / 10 years ago

Euro zone services PMI dips as divergence remains

LONDON (Reuters) - The euro zone’s dominant service sector expanded at a slower pace in January than in the previous month as a country divergence widened but firms grew more optimistic about the year ahead, a survey showed on Wednesday.

Markit’s final Eurozone Services Purchasing Managers’ Index of around 2,000 companies, ranging from banks to hotels, fell to 52.5 in January from 53.6 in December, but was revised up from a flash estimate released two weeks ago of 52.3.

This marks the fifth consecutive month the index has been above the 50.0 mark that divides growth from contraction. At this time last year the index was languishing near 11-1/2 year survey lows amid the worst recession since the Second World War.

Markets were little moved on the data.

Worryingly for policymakers, while Germany, France and Italy continued to expand, the Spanish service sector contracted for the 25th month, mirroring the pattern in manufacturing data released on Monday.

“Service sector expansion slowed in January in Germany, France and Italy, while the rate of contraction deepened in Ireland. Some modestly better news saw Spanish activity contract at the slowest rate for 25 months,” said Howard Archer at HIS Global Insight.

Monday’s euro zone manufacturing index data also showed a divergence as it rose to a two-year high, giving the European Central Bank food-for-thought ahead of its latest policy meeting on Thursday.

“The rate of overall growth of business activity has slowed since December, suggesting that the manufacturing-led rebound is still struggling to fully transmit through to service

providers,” said Rob Dobson at Markit.

For a graphic comparing manufacturing and services PMIs, click

here

The combined composite PMI dropped to 53.7 in January, from 54.2 in December, but was revised up from a flash estimate of 53.6.

Data due in the United States later on Wednesday are expected to show service activity accelerated but it was a different story in China where activity slowed from recent heady

heights.

HSBC’s China services sector Business Activity Index slipped to 56.8 in January from 57.2 in December, ending three months of rises, although Chinese service providers were more confident about the one-year outlook than at any point in the past 18 months, survey compilers Markit said.

But business activity among Indian services companies expanded at its fastest pace in 16 months in January, rising for a second straight month on sharp increase in new work orders, its equivalent survey showed.

OUTLOOK UP, JOBS DOWN

The euro zone service sector business expectations index rose to 67.2 in January from 65.7 in December, but revised down from a flash reading of 68.2.

Markit said the index rose in all constituent countries, suggesting the one-year outlook across the euro zone is improving, but while the outlook for business was improving uncertainty lingers for the job market.

The composite employment index nudged up to 46.2 in January, revised down from a flash reading of 46.4, just above December’s 46.1 as firms continue to shed jobs to cut costs. January was the 19th month for a below 50.0 reading.

Official data released last week showed unemployment in the euro zone rose to 10.0 percent in December — its highest since August 2008 — from 9.9 percent in November.

Siemens, Europe’s biggest engineering group, said last week it was cutting nearly 2,000 jobs in Germany while the world’s largest brewer Anheuser-Busch InBev (ABI.BR) plans to

shed 299 of its 2,700-strong Belgian workforce.

-Detailed PMI data are only available under licence from Markit and customers need to apply to Markit for a licence.

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(Editing by Stephen Nisbet and Toby Chopra)

For more news on Reuters Money visit http://www.reutersmoney.in

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