Euro zone service sector growth slows

The euro zone's dominant service sector eased off the accelerator last month but a strong manufacturing performance meant the bloc's economy made a solid start to the second quarter, surveys showed today.

The expansion was again dominated by Germany and France, which masked virtual stagnation in Spain and slowing growth in Italy and Ireland, and has come at a cost as firms ramped up their prices.

The Markit Eurozone Services Purchasing Managers' Index, which measures changes in the activities of euro zone firms ranging from banks to restaurants, slipped to 56.7 in April from the previous month's near 4-year high of 57.2.

This marked its 20th month in a row above the 50 mark that divides growth from contraction with the figure revised slightly down from a preliminary reading of 56.9 released two weeks ago.

"Despite the fall in the euro zone PMI's Activity Index, the April survey provides little to worry about on the growth front, consistent with the service sector growing at a quarterly rate of roughly 0.7-0.8 per cent at the start of the second quarter," said Chris Williamson at data compiler Markit.

"Of greater concern was the news on inflation and national variations in performance, with fast growth stoking inflationary pressures in France and Germany while the region's periphery stagnates."

The output price index rose to 53.0 last month, its highest level since July 2008 and up from March's 52.3, as firms grew increasingly confident about passing on soaring input costs to customers.

Official flash data released on Friday showed consumer prices in the bloc rose 2.8 percent in April, up from March's 2.7 per cent and above expectations for 2.7 per cent.

The figures will bolster those policymakers at the European Central Bank who believe the strong recovery in Europe's core economies calls for more monetary tightening before price rises become entrenched, even while weaker euro zone states remain engulfed in the debt crisis.

The ECB was the first of the big four central banks to raise rates when it increased them by 25 basis points from a record low of 1 per cent last month but it is not seen making its next move until July.

The composite PMI, which combines data from Monday's manufacturing survey with the latest service sector figures, edged up to 57.8 from March's 57.6, in line with the flash reading.

Markit said the data marked a good start to the second quarter for the euro zone's private sector, consistent with GDP rising by around 0.8 per cent on a quarter-on-quarter basis. Economists polled by Reuters expect growth of 0.4 per cent.

Earlier data from Germany, Europe's largest economy, showed expansion in its service sector slowed but remained strong while France's growth accelerated. Spain's indicator just nudged over the 50 mark to record a negligible upturn.

"The worrying two-speed nature of the upturn shows no signs of fading, with soaring growth in France and Germany failing to spill over to stimulate similar buoyancy in the periphery," Mr Williamson said.

The composite employment index held steady last month at March's 53.1, just below February's post-recession high of 53.3, as firms took on more workers to meet demand.

Unemployment held steady at 9.9 per cent in March, official data released last week showed.

Reuters