Euro zone sees contraction in services sector

The UK News Wednesday 22nd February, 2012

LONDON - The eurozone's service sector shrank this month while the manufacturing also did not perform so well, according to a new business survey.

Markit's Eurozone Services Purchasing Managers' Index (PMI) fell in February to 49.4 from last month's level of 50.4. Any figure below 50 means a drop in activity.

In the case of manufacturing sector, with the PMI only reaching 49 up from January's 48.8 level, there is not much to cheer.

The factory output index remained steady at last month's level of 50.4, but survey showed a drop in new orders for the ninth consecutive month, with the index at 47.1.

The consolation is that the rate of deterioration has eased for the fourth month in a row to register the smallest drop in demand for six months.

"We need order growth to pick up but it is still in decline, they are still relying on their pipeline of previous orders to sustain these levels of activity. In the service sector, they are stimulating demand through price cuts, manufacturers are also squeezing their margins," said Markit's chief economist Chris Williamson.

There are expectations that the data may undergo some revision as they were compiled before the Greek bailout decision.

The revised final figures are expected in the beginning of March.

The latest figure signaled a slight contraction in business activity following the marginal expansion seen in January, which had been the first month in which the Index had risen above the 50.0 no-change level since last August, the Markit survey report stated.

"The latest reading was nevertheless the second highest of the past six months, and suggests that the Eurozone economy has stabilized over the first two months of the year having contracted in the final quarter of 2011," the report adds.

Employment is one area of concern. Due to a combination of falling inflows of new business and lower backlogs of work, companies trimmed their headcounts, leading to a slight drop in employment for the second successive month.

Reductions in headcounts were only marginal in both manufacturing and services, but contrasted with robust employment growth in both sectors during the first half of last year.

In the 17-nation zone, employment growth in Germany slowed to the weakest since March 2010, while only a modest gain was seen in France.

Elsewhere in the Eurozone, the average rate of job losses eased to a four-month low but remained steep.