The Eurozone service sector contracted for the 13th straight month in February, with the rate of decline accelerating slightly from the ten month low seen in January. Ongoing strong growth in Germany – albeit to a weaker extent than in January – was countered by marked contractions in France, Spain and Italy. New business fell for the eighteenth month in a row, dropping at a faster rate than in January – though less steeply than seen throughout the second half of last year.

Backlogs of work fell at the fastest rate for three months due to the deterioration in new business, dropping for the twentieth successive month. The worsening order book situation also prompted service providers to cut headcounts for the fourteenth consecutive month, albeit with the rate of job losses easing compared to January (and being slightly less marked than the flash estimate).

Service providers’ optimism regarding future business activity levels over the coming year deteriorated from January’s eight-month high, but remained above the average seen throughout last year.

Average input costs rose at the same rate as in January, with inflation reflecting higher energy prices. Meanwhile, service providers’ selling prices fell at the slowest rate for nine months, as the need to pass higher costs on to customers in part offset the need to offer discounts in the face of weak demand and stiff competition.

Chris Williamson, chief economist at Markit said: “The dip in the Eurozone PMI compared to January is a disappointment, but the region still looks set to see a much smaller drop in GDP in the first quarter compared to the 0.6% decline seen in the final quarter of last year, with the PMI so far consistent with a 0.2% GDP decline. “Worryingly, the divergence between Germany and France so far this year is the widest in the 15-year survey history. Germany is on course to see the strongest quarterly growth since the spring of 2011, but France is contracting at the fastest rate for four years. “The deteriorating picture in the periphery is also a concern. Rates of decline picked up in Italy and Spain, with further weakness likely in Italy especially in coming months due to the uncertainty caused by the elections. “The outlook therefore seems to largely depend on whether Germany can continue to expand and offset the weakness in France, Italy and Spain, which seems a tall order, meaning hopes of a return to growth for the region by mid-2013 are now looking too optimistic.”

The Eurozone Services PMI (Purchasing Managers' Index) is produced by Markit and is based on original survey data collected from a representative panel of around 2,000 private service sector firms. National data are included for Germany, France, Italy, Spain and the Republic of Ireland. These countries together account for an estimated 80% of Eurozone private sector services output.