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News : EU Economy Last Updated: Apr 4, 2014 - 10:21 AM

Eurozone Services Business Activity Index fell slightly in March
By Finfacts Team
Apr 3, 2014 - 10:05 AM

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The Eurozone Services Business Activity Index posted 52.2 in March, down slightly from February’s 32-month high of 52.6. The index therefore signalled an expansion of output for the eighth successive month and one of the fastest rates of growth since the first half of 2011.

The rate of expansion in Ireland surged higher, closing in on December 2013’s near-seven year record. Although France saw only a modest increase in business activity, this was a marked improvement on the contractions registered in the prior four months. Services output growth slowed to a five-month low in Germany and ticked higher in Spain, while Italy fell back into contraction.

Irish Economy 2014: Services PMI accelerates in March but official data more muted

The latest increase in eurozone services output was underpinned by a moderate increase in new business, which rose at a similar pace to February. The outlook for the sector also brightened, as business confidence* hit a near-three year peak.

Optimism was highest in Ireland (despite dipping over the month), improved in Italy and Spain, and held broadly steady in France and Germany. Employment was broadly unchanged in March, as rising levels of business activity and new orders aided in stabilising the trend in service sector headcounts. Strong jobs growth was again signalled in Ireland, while Germany also posted a modest increase (albeit at a slower pace than in February). Although further losses were reported in France, Italy and Spain, rates of decrease slowed in France and Spain and steadied in Italy.

Strong competition remained a factor affecting eurozone service providers in March, leading to further selling price discounts. Average charges fell for the twenty-eighth month running, with only Germany reporting an increase.

The moderation in price pressures was also reflected on the cost side, with average input price inflation in the euro area service sector the weakest since June last year. Rates of increase eased in almost all of the nations covered, the exception being Italy (where the pace was broadly stable).

* for business optimism, companies are asked whether they expect levels of business activity in one year’s time to be higher, the same or lower than the current month.

Chris Williamson, chief economist at Markit said:  “The final PMI data for March round off the region’s best quarter for three years, with the survey data signalling that the economy grew by 0.5% compared to the fourth quarter.

“The surveys also confirm that the recovery is broad-based. The upturn is being spearheaded by Germany, which PMI data suggest grew by 0.7% in the first quarter. Spain looks set to have enjoyed its best quarter for six years, growing by 0.5%. Italy meanwhile has enjoyed its best spell of growth for three years, being on course to have expanded by 0.3%. France continues to lag behind, but is nevertheless the biggest news story in March with its PMI hitting a two-and-a-half-year high and suggesting the economy achieved modest growth. “It is reassuring to see services growing at the fastest rate since the first half of 2011, as this provides further signs that domestic demand is reviving.

“The recent improvement in the PMI suggests the region’s recovery in terms of economic growth is in line with policymakers’ expectations, but the concerns will lie with the price data. Prices charged by manufacturers fell for the first time in seven months and charges levied for services were cut at a stronger rate, having fallen continually over the past 28 months.

“The weakening price indices will stoke fears that deflationary forces are intensifying amid weak demand and near-record unemployment. But the survey responses also show that companies are pricing more aggressively, having become leaner and more productive – which bodes well for competitiveness.”

The Eurozone Services PMI  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 78% of Eurozone private sector services output.

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