A major survey of euro zone services companies revealed today that businesses were optimistic about the future after fighting ended in Iraq, even though activity in the sector shrank.
The latest Reuters survey of over 2,000 companies, carried out after the fall of Baghdad on April 9th, showed business in the services sector shrank in April at the same pace as in March, with the key index remaining below the neutral 50 line at 47.7. Economists had forecast a slight rise to 47.9.
However, the expectations index, which measures whether companies think business will be better in 12 months' time, rose markedly in April to 62.6 from 59.6 in March.
"There are some very embryonic signs here that sentiment is beginning to bottom out and consolidate," said Mr David Brown at Bear Stearns in London.
"It's too early to read in any post-war rebound in business optimism just yet in the services sector, but we could be getting closer to the end of the downturn in terms of business sentiment both for manufacturing and services," he added.
Even so, he said, the euro zone needed an early official rate cut. Most economists in a Reuters survey last week forecast the European Central Bank would keep rates on hold when it meets on Thursday but expected a rate cut in June.
The euro zone survey, which covers firms ranging from airlines and insurers to restaurants and cleaning services, showed new business levels fell at the fastest pace in 17 months in April, with the new business index slipping to 46.7 from 47.3.
The service sector accounts for about two-thirds of the euro zone economy. Germany, the region's biggest economy, remained the biggest drag on the euro zone indices.