Euro zone services sector grows more than expected

City A.M. Reporter
Vibrant growth in Germany helped the euro zone's services sector expand faster in January despite growing weakness elsewhere in the bloc, early findings from a business survey showed.

Markit's Eurozone Flash Services Purchasing Managers' Index (PMI), comprising surveys of around 2,000 businesses ranging from banks to hotels, rose to 55.2 from 54.2 in December, comfortably beating expectations of 54.3.

That marked its 17th month above the 50 mark that divides growth from contraction, while its new business index hit a 39-month high of 55.4, up from December's 53.9. However, jobs growth slowed for the second month in a row during January.

Survey compiler Markit warned that behind the strong headline figures, there were few signs that firms in peripheral countries like Ireland and Spain were catching up with peers in Germany and France, the biggest euro zone economies.

"If anything it's becoming a German concentration of strength," said Chris Williamson, chief economist at Markit.

"France moved down a gear compared to much of last year, but nothing like what we're seeing outside where the periphery is close to stagnation."

Peripheral euro zone countries, which include the likes of Ireland and Spain which are already struggling with a debt crisis, have seen new orders fall in four of the last five months, said Williamson.

German business morale rose to its highest in 20 years in January, the Munich-based Ifo institute said on Friday, two days after the German government raised its 2011 growth forecast by half a percentage point to 2.3 percent.

The individual PMI series for Germany released earlier on Monday painted a similar picture of strength, with record growth of services new orders and the headline services PMI hitting 60.0, a 55-month high.

In France, services growth accelerated in January but the expansion of its manufacturing sector slowed slightly, marked by a slight decline in employment there.

Overall, Williamson said January's PMI data was consistent with first quarter euro zone economic growth of around 0.7 per cent.