Euro zone services sector contracts faster than anticipated

Ireland’s services sector continued to enjoy positive momentum in May, experiencing a tenth successive month of growth although the picture was not as healthy for the wider euro zone.

According to Investec’s monthly Services Purchasing Managers’ Index (PMI) released this morning, the headline rate of 52.7, while below April’s 55.2 reading, represented a continuation of the sector’s positive performance over the last year. A reading above 50 indicates growth.

The PMI data is composed from a survey that covers all private sector services in Ireland, excluding retail and wholesale.

Optimistic
Providers remained optimistic with regards to the one-year outlook on activity, but sentiment eased to the weakest since August 2012. Improvements in economic conditions both in Ireland and across Europe were forecast to support growth of activity.

"Respondents linked this latest improvement to rising new business both domestically and from export markets," said Philip O'Sullivan, chief economist at Investec.

“The new export business sub-index has now recorded 22 months of unbroken growth, with the UK and Middle East cited by some respondents as areas of particular strength during May.”

However, subdued euro zone PMIs kept pressure on the European Central Bank to do more to stimulate growth, although it did not change the view that the bank will leave monetary policy unchanged after its meeting today.

An index of activity in the services industry based on a survey of purchasing managers was at 47.2 last month, compared with 47 in April, London-based Markit Economics reported yesterday. The May figure is below an initial estimate of 47.5 published on May 23th.

Current quarter
Although slightly more upbeat in tone than in April, the May PMIs suggested the euro zone's recession will continue through the current quarter after Eurostat confirmed the economy shrank 0.2 per cent between January and March.

By contrast, Britain’s services sector grew much faster than expected as order books filled at the fastest rate in more than three years. The UK services PMI rose to 54.9 in May from 52.9 in April – the strongest reading since March 2012.