Euro zone service sector growth falters

Growth in the euro zone's dominant service sector slowed for a third straight month in June, and by more than an initial estimate, with sluggish new orders dimming the outlook, a survey showed today.

Growth was again driven mainly by France and Germany, with other countries in the 17-nation region weakening further and the possibility of a double-dip recession in Italy increasing.

The Markit Eurozone Services Purchasing Managers' Index (PMI) fell to 53.7 last month from 56.0 in May. It was revised down sharply from a flash reading of 54.2 to its lowest level since last October.

"France and Germany remain the key drivers of service sector growth in the euro area," said Chris Williamson at data provider Markit.

"But with manufacturing growth having slowed sharply in both of these countries in June, the concern is that services activity could also trend downwards in coming months."

The latest evidence of weakness in euro zone peripheral economies comes as the European Central Bank is widely expected to raise its key interest rate to 1.50 per cent when it meets on Thursday as it focuses on controlling inflation that is running well above the bank's 2 per cent target ceiling.

The composite PMI, which combines the services and manufacturing data published last week, fell to 53.3, its lowest level since October 2009, down from 55.8 in May and a flash estimate of 53.6.

Markit said the data was consistent with second-quarter economic growth of 0.6 per cent in the euro zone, slower than the 0.8 per cent seen in the first quarter, and that the loss of momentum did not bode well for the current quarter that just began either.

Earlier data from France and Germany showed composite PMIs slipped to eight-month lows while Spain's services PMI retreated perilously close to the 50 break-even mark. Italy's services PMI fell below 50 for the second time this year.

Meanwhile Greece faces years of economic purgatory after being forced to go cap in hand to the EU and IMF for the second time. Ireland and Portugal are not faring much better.

Euro zone services business expectations hit a two-year low - down to 62.8 from 65.2 in May - as firms worry about the global economic recovery and a tail-off in orders.

The composite PMI new business index fell to its lowest level since November 2009 at 52.4, down from May's 54.7, but policymakers will take heart that the input price index maintained its downward path while the output prices indicator held steady from May.

Reuters