Euro zone services downturn eases

The downturn in the euro zone's vast private sector economy eased slightly towards the new year thanks to an upturn in Germany, although the region still looks firmly on course for recession, surveys showed today.

The latest set of purchasing managers' indexes (PMIs) suggested a harsh economic contraction took place in the fourth quarter of 2011, with the euro zone firmly on course for a moderate recession.

Markit's Eurozone Composite PMI rose in December to 48.3 from 47.0 in November, revised up from a preliminary reading of 47.9. Despite the improvement, the index spent its fourth month below the 50 mark that divides growth and contraction.

Survey compiler Markit warned of a worsening divergence between the euro zone's stronger economies like Germany and France, and the likes of Italy and Spain that seem to be undergoing a severe economic contraction.

"The uplift in the euro zone PMI in December does little to dispel fears of the region sliding back into recession," said Chris Williamson, chief economist at Markit.

"Despite the upturn, the fourth quarter saw the steepest contraction since the spring of 2009, and forward-looking indicators suggest that a further decline is on the cards for the first quarter of 2012."

Italy and Spain were probably already in recession as domestic austerity measures further weighed on the economy, he said.

Markit revised down the employment sub-index of the composite PMI to 50.4 in the final December reading from 50.9 in the preliminary survey of two weeks ago, although it was still a modest improvement from November's 50.1.

The euro zone unemployment rate edged up to 10.3 per cent in October, a figure that encompasses very high levels of joblessness in peripheral countries such as Spain and Greece with relatively firm labour markets in France and Germany.

The number of Spaniards without work increased slightly in December, leaving some 4.42 million people out of work in Spain, or a third of the total number of unemployed across the euro zone.

The euro zone services PMI, which looks at companies ranging from banks to restaurants, also rose in December, to 48.8 from 47.5 the previous month and up from the preliminary reading of 48.3. But that was still the fourth month below the 50 watermark for growth.

Again, the survey suggested a dire struggle for the euro zone's peripheral countries, with better fortunes in the currency area's core.

"France is meanwhile showing signs of stabilising from the worrying slide into contraction seen in October, pointing to some resilience in the face of the region's debt crisis," said Markit's Williamson.

"Germany's service sector is proving the most resilient, however, with a strengthening of domestic demand - from both consumers and businesses - helping to propel service sector growth to a five-month high."

The services PMI's business expectations component was roughly steady at 53.6 in December from 53.5 the previous month, but not far off October's 31-month low of 52.7.

Reuters