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News : EU Economy Last Updated: Jun 5, 2015 - 7:46 AM

Eurozone service sector business activity slowed during May
By Michael Hennigan, Finfacts founder and editor
Jun 3, 2015 - 9:58 AM

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Eurozone service sector business activity rose at the slowest pace in three months during May, as growth of new orders moderated and business optimism slipped to a five-month low.

At 53.8 in May, from 54.1 in April, the Eurozone Services Business Activity Index signalled an expansion of output for the twenty-second successive month. Business activity also rose across each of the ‘big-four’ nations. Spain was the stand-out performer of the nations for which data were available, recording by far the steepest increases in both output and new orders.

Business activity growth was evenly distributed between Germany, France and Italy, with rates of expansion broadly similar in each case. However, France was the only country among the ‘big-four’ to report a stronger increase in either output or new orders (registering faster expansions in both).

Eurozone service sector employment rose for the seventh month running in May, with the pace of job creation hitting a four-and-a-half year high. Increased staffing levels aided efforts to clear outstanding business, leading to the first decline in backlogs of work during the year-to-date. Accelerated growth of employment was registered in Germany, France and Spain.

Although job creation slowed in Italy, employment nonetheless rose for the fourth straight month. May’s survey highlighted an acceleration in cost inflation, with input prices rising at the strongest pace since December 2012. Some service providers noted higher staff costs and a recent increase in oil prices. In contrast, average service charges fell for the forty-second consecutive month in May.

However, the decline was the smallest recorded since March 2012. Of the nations for which data were available, only Germany reported an increase in average selling prices. † 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 recovery lost some of the wind from its sails in May, with growth of output and new orders both slowing to three-month lows. “The weak euro is boosting manufacturing and households are benefitting from lower inflation, but the region’s high unemployment continues to limit spending on goods and services.

"Heightened uncertainty surrounding the Greek debt crisis is also acting as a brake on growth Although the current expansion signalled by the PMI suggests there’s a good chance of the euro area enjoying growth of 2% in 2015, there are significant downside risks. Oil prices need to remain low and any escalation of the Greek crisis could rapidly derail the recovery.

“The ECB’s stimulus also appears to have been an important factor lifting business and consumer confidence, and any suggestions that QE asset purchases may need to be reined in early look premature given the fragility of growth indicated by the PMI in May and the potential headwinds facing the region’s economy.”

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