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News : EU Economy Last Updated: Feb 10, 2015 - 7:19 AM

Eurozone service sector activity at 5-month high
By Michael Hennigan, Finfacts founder and editor
Feb 4, 2015 - 9:20 AM

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The Eurozone service sector saw the growth rate of business activity accelerate to a five-month high in January. At 52.7, up from 51.6 in December, the Eurozone Services Business Activity Index signalled that the current sequence of expansion now runs to one-and-a-half years. Business optimismalso improved, hitting a ten-month high.

The upturn remained fastest in Ireland, where output growth stayed close to December’s six-month peak. Spain saw the fastest increase in activity since August last year, while growth in Germany improved to a three-month high.

Italy moved back into expansion territory with the third increase in output during the past four months, following a brief hiatus in December. In contrast, output in the French service sector moved in the opposite direction, falling for the fourth time in the past five months.

Underpinning the latest expansion in Eurozone service sector output was a further increase in new business, with growth signalled in Germany, Spain, Ireland and France. Meanwhile, the trend in backlogs of work stabilised following a seven-month sequence of decline.

Job creation was registered in the service sector for the third straight month. Although the rate of increase was again only modest, it was still the fastest registered since July 2014.

The quickest jobs growth was signalled in Ireland, albeit slower than in December, while accelerations were seen in both Germany (six-month high) and Spain (nine-month high).

France and Italy both reported cuts to workforce numbers in January. The pace of job losses in Italy was the fastest since April last year, while the decline in France was the joint-weakest during the current 15-month sequence of reduction.

Input price inflation eased to a near-five year low in January, as signs of higher wages and salaries in pockets of the Eurozone service sector were partly offset by the filtering through of lower oil prices to a number of other costs. Meanwhile, average service charges fell at one of the fastest rates during the past five years.

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 picked up momentum to a greater extent than initially thought in January, with the final PMI reading beating the flash estimate to signal the fastest rate of growth for six months.

"The rate of job creation also inched higher to a pace not seen since mid-2011, adding to signs of increasing optimism among employers about the year ahead.

"The survey data are running at a level consistent with GDP rising by 0.3% in the first quarter, and the move to full-scale quantitative easing by the ECB should help drive even stronger growth in coming months. However, there are clearly many risks to the outlook, including any escalation of the Greek crisis and the political fracas with Russia.

"Spain and Ireland are the stand-out performers, both in terms of the pace of economic growth and hiring signalled by the survey data. The strength of employment growth is particularly encouraging in these countries, providing hope for the rest of the region that unemployment rates could start to fall in earnest in 2015. The rate of job creation in Spain strengthened to the fastest since September 2007, while in recent months Ireland has seen the strongest period of job market gains since data were first collected in 2000.

"The upturn in growth in Germany and return to expansion in Italy were also welcome developments but France remained the laggard, suffering a ninth consecutive monthly drop in business activity."

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