Growth in euro zone services sector slows

The expansion of the euro zone's services economy slowed a little in May as business confidence dipped to its weakest in a year and a half, according to surveys on Friday, although inflation pressures started to ease.

The Markit Eurozone Services PMI, measuring the changes in the activities of around 2,000 companies ranging from banks to hotels, fell in May to 56.0 from 56.7 in April, although it was revised up from the preliminary May reading of 55.4.

That represented the index's 21st month above the 50 mark that signifies growth, but survey compiler Markit warned of still-worsening disparities between a strong Franco-German euro zone core, and debt-burdened peripheral members.

"Despite slowing, services growth remains robust and the sector should still make a significant contribution to economic growth in the second quarter," said Chris Williamson, Markit's chief economist.

However, the rate of growth looks likely to slip further in coming months, as indicated by business confidence sliding to the weakest for a year-and-a-half and new business rising at the slowest pace for five months.

The euro zone economy's 0.8 per cent quarter-on-quarter expansion estimated for the first three months of the year could be as good as it gets for this year, Mr Williamson added.

The business confidence index hit its lowest since November 2009 in May, dropping to 65.2 from 66.1 the previous month - echoing a bigger-than-expected fall in economic sentiment shown in official figures for May published last week.

In more welcome news for euro zone policymakers, both the input and output price components of the survey recorded falls, suggesting inflation could finally be on the wane after last week's figures showed consumer price growth slipped to 2.7 percent in April from 2.8 percent in March.

The euro zone's composite PMI, which combines Wednesday's manufacturing survey with today's services data, slipped two points to 55.8 in May from 57.8 in April - though that was slightly better than the flash reading of 55.4.

"The second quarter as a whole therefore looks likely to have seen GDP growth weaken from the robust 0.8 per cent expansion seen in the first three months of the year, although a 0.7 percent expansion could still be possible providing the survey data do not fall further in June," said Markit's Williamson.

The consensus forecasts of economists in a recent Reuters poll is for growth of 0.4 per cent in the second quarter.

The composite PMI showed both input and output price components falling in May. The new business index hit a six-month low of 54.7 from 56.8 in April, however.

As with the services data, the composite PMI showed a growing gap between strongly performing economies like France and Germany, and laggards in Spain, Italy and Ireland tipping closer towards stagnation.

"The lack of growth in these countries will threaten budget deficit reduction plans via lower tax receipts and higher welfare spending."

Reuters