UK services grow slowly but Eurozone contracts

Ben Southwood
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EUROZONE services continued to collapse in September, contracting even faster than in August, data showed yesterday, while UK service firms just managed to avoid decline.

Output and business activity in the Eurozone service sector both slipped to levels indicative of faster decline, according to Markit's purchasing managers’ index (PMI) business survey, prompting analysts to call renewed Eurozone recession “inevitable”.

The PMI for output crept down from 46.3 in August to 46.1 in September – well under the 50 level that indicates no change – while the PMI for business activity dived from 47.2, also to 46.1.

“[The data] signalled one of the steepest monthly downturns seen over the past three years,” said Chris Williamson, chief economist at Markit. “It seems inevitable that the region will have fallen back into recession in the third quarter.”

While Ireland continued to defy the crisis, with an output PMI of 53, and though Eurozone powerhouse Germany managed to avoid the worst of the slump, France, Italy and Spain came in for a hammering.

French service output fell to a 42-month low of 43.2, while Spanish services dropped even further, to a four-month low of 41.2. Italy managed to improve its score, but only to 44.8, which still indicates rapid decline.

But the UK managed to avoid much of the turmoil in services seen in the currency bloc, according to PMI data from Markit and the Chartered Institute of Purchasing & Supply.

The PMI for business activity declined from 53.7 to 52.2, showing a decline in the pace of expansion, but still implying expansion. Volumes of new business increased at the fastest pace since May.

Analysts said the figures marked fragile growth. “We expect GDP to increase robustly in the third quarter due to one-off factors,” said Nida Ali of the Ernst & Young Item Club. “But evidence from the PMI surveys suggests that underlying growth was probably quite weak.”

The US managed to shrug off Europe’s woes, with speedy service sector growth, data from the Institute of Supply Management (ISM) revealed yesterday. The ISM’s index grew to 55.1, from 53.7 in August, further above the 50 no change value.