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News : EU Economy Last Updated: Jan 6, 2015 - 10:31 AM

Eurozone service sector grew in December at slow pace
By Finfacts Team
Jan 6, 2015 - 10:27 AM

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The Eurozone service sector remained on a soft track at the end of 2014. Although growth of business activity and new orders was recorded, with trends in both improving on those signalled in November, rates of expansion were only modest in both cases. A further drop in backlogs of work and muted business confidencealso highlighted the underlying subdued conditions in the sector.

At 51.6 in December, up from November’s 11-month low of 51.1, the Eurozone Services Business Activity Index remained above the neutral 50.0 mark for the seventeenth month in a row but came in below the flash estimate of 51.9.

Over the three months to December, the average business activity index reading of 51.7 was the lowest for a calendar quarter since the same quarter of 2013 (51.2).

December saw the big-three economies continue to report lacklustre service sector performances. Output growth in Germany stabilised at November’s 16-month low, while Italy fell back into contraction for the first time since September.

Germany and Italy were both impacted by declining inflows of new business, with new orders falling for the first time in one-and-a-half years in the former and for the second straight month in the latter. Although France reported increases in business activity and new orders for the first time in four months, rates of expansion were only moderate.

Better news came from Ireland and Spain, which both reported solid and accelerated growth of business activity and new orders at year-end.

Service sector employment rose for the second successive month in December. Although the rate of jobs growth remained only mild, it was nonetheless the fastest signalled since July. Workforce numbers were raised in Germany, Ireland and Spain, reduced further in France and were broadly unchanged in Italy.

Cost inflation eased to a 58-month low in December, with slower increases signalled in Germany, Italy and Ireland. In contrast, output charges fell for the thirty-seventh month in a row amid weak demand and strong competition.

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 Eurozone economy ended 2014 with its worst quarter for over a year. There’s some relief in that the rate of growth picked up slightly in December, rather than easing further, but the PMI reading was still the second-lowest seen for 17 months, highlighting another disappointing lacklustre performance. GDP looks set to rise by a mere 0.1% in the fourth quarter. The Eurozone will look upon 2014 as a year in which recession was avoided by the narrowest of margins, but the weakness of the survey data suggests there’s no guarantee that a renewed downturn will not be seen in 2015.

"Of greatest concerns are the ongoing downturns in France and Italy, alongside the stuttering performance seen in Germany. Any signs of life, with Ireland and Spain most notable in seeing their best growth spells since the global financial crisis, are in danger of being extinguished by malaise spreading from the region’s largest economies unless business and consumer confidence revives.

"The weakness of the PMI in December will add to calls for more aggressive central bank stimulus, including full-scale quantitative easing, to be undertaken as soon as possible. However, with lower oil prices set to reduce businesses’ costs and boost consumer spending, the outlook has brightened, and policymakers may choose to wait and see if the rate of growth continues to pick up before making firm decisions on whether such controversial steps need to be taken."

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