Tuesday, May 06, 2008

Eurozone Services PMI April 2008

Eurozone service sector growth held steady at a slightly slower pace in April as faster growth in Germany contrasted with weakness elsewhere; Spain in particular stood out and reported record job cuts.

The RBS/NTC Eurozone Services Business Activity Index rose from 51.6 in March to 52.0 in April, coming in slightly above the earlier flash estimate of 51.8. However, the rise still indicated only a very modest acceleration in growth, with the rate of increase remaining weak by historical standards of the survey (and only slightly above the average reading for Q1, which had been the weakest quarter since Q2 2003).


Germany's services sector expanded for the third month running in April and at its fastest pace in six months, buoyed by a marked upturn in new business growth, The NTC services PMI survey showed on Tuesday.

NTC Research's business activity gauge for German firms ranging from banks to catering rose to 54.9 from 51.8, holding above the 50 mark separating expansion and contraction for the third month running and hitting its highest level in six months.
Even so, firms were less upbeat about the corporate outlook. Business expectations remained in the 'expansion' zone, but stayed well below the long-run series average, registering 51.2.

"The business expectations index ... does suggest that firms are very cautious," said Chris Williamson, chief economist at NTC, which compiles the data.
Anecdotal evidence suggested that a weaker economic outlook for the next 12 months weighed on business sentiment, NTC said.

The German government expects economic growth to slow to around 1.7 percent in 2008 from 2.5 percent last year. Next year it has forecast expansion of some 1.2 percent.
Although economic indicators point to the German economy, Europe's largest, making a strong start to this year, it has not escaped the fallout from the global credit crisis.

While a new business index rose sharply to 55.6 in April from 52.1 in March, the financial intermediation sector was the only one of six broad areas of the services economy where new business did not grow in April, NTC said.

An index on input prices rose to 62.7 from 60.3 in March. That reading was the highest this year and only just below last December's seven-year high.


France's service sector grew at its weakest pace in nearly five years in April as an economic slowdown stemmed the flow of new business, a NTC/CDAF survey showed on Tuesday. Their Purchasing Managers' Index of the French services sector dropped sharply to 52.8, its lowest since August 2003, from 57.3 in March.

"The subdued rise in activity during the latest month marked a significant turnaround from the resilience seen in the first quarter of the year and suggests that deteriorating economic conditions may finally be taking their toll on France's dominant service sector," NTC said in a statement.

New business growth slowed to its weakest since September 2004 as firms reported a general softening in demand and a dearth of client inquiries.

"It looks like consumers have reined in spending on services quite significantly," said Chris Williamson, chief economist at data compiler NTC.

Slowing growth is also jeopardising President Nicolas Sarkozy's goal of cutting unemployment, and the NTC/CDAF survey showed firms in the service sector are already responding to the weaker economic climate by scaling back hiring.
In a sign that inflation pressures are persisting, the survey showed service sector firms continued to raise the prices they charged as their input costs kept increasing.


Italian service sector activity contracted for the fifth month running in April, but by less than expected, an NTC/ADACI survey showed on Tuesday. The NTC Research Purchasing Managers' Index rose to 49.8 from 48.8 in March. The survey's sub-index on new business rose to 48.5 from 48.3, its sixth consecutive month of contraction.

"April figures painted a slightly more positive picture of the Italian services economy, although activity and new orders continued to fall, reflecting a continued difficult economic environment," said Verity Howell, an economist at NTC Economics which compiles the data.

NTC's chief economist Chris Williamson said the data provided a glimmer of hope that the services PMI may be on an uptrend after February's decade low of 47.2. "I remain sceptical until I see the numbers actually come up above 50. We're at 49.8, we're nearly there, but I have a suspicion that what we're seeing is a dead cat bounce in some respects, that things could come down further," he said.

The hotels and restaurant sector was the only segment to record any growth in new business. Transport and storage posted the biggest shrinkage in new business. This reflected the weakness in Italian manufacturing where the April PMI index showed a contraction for the second month running, reaching its lowest point since May 2005.
The services survey also revealed nervousness about the future, with the business expectations index only just above January's all-time low.

"They are obviously pessimistic," said Williamson. "I think going forward you will see further pressure to cut back expenditure and employment levels and that's going to feed through to growth."

The data showed an easing in inflationary pressures with the input prices index down to 64.2 from March's 66.4. The prices charged index fell to 51.7 from 52.1.


Spain's service businesses cut jobs in April at the fastest pace in the near nine-year history of an NTC survey of the sector as demand contracted for the sixth month running, data from NTC showed. In the wake of a Bank of Spain forecast that economic growth slowed to 2.8 percent in the first quarter from 3.5 percent in the final quarter of 2007, the PMI survey showed both activity and new orders fell sharply, although the slide was slightly less pronounced that a month ago.

The headline index for the sector edged up to 42.5 in April from 40.9 in March, while the new business index was unchanged from March's survey low of 40.2, its sixth month below the 50 divide between growth and contraction.

Chris Williamson, chief economist at NTC Economics, said the survey showed that Spain's downturn had expanded well beyond the property sector -- the engine for a decade of Spanish growth which is now running out of steam. "It looks like there's a broad-based downturn occurring here, and there's evidence to suggest that's going to continue in the coming months," Williamson said.

Only two sectors of the six sectors surveyed -- business-to-business services and IT -- showed any growth at all, said Williamson.

"All sectors exposed to the consumer are having a hard time, which suggests that basing forecasts on weakness confined to property and construction is being rather hopeful."

Official data last month showed the unemployment rate jumped in the first quarter to a 3-year high of 9.6 percent and NTC said that based on the PMI survey, that would rise further in the second quarter. The PMI showed the sharpest decline in employment in the sector since the survey began in August 1999 as companies adapted to reduced workloads. Optimism also hit a survey low, for the third month running, although more than one third of those surveyed thought business would pick up in the next year.


Irish Service Sector activity fell at sharpest rate since October 2001 in April while confidence eased to lowest level for over six-and-a-half years. Irish service sector activity providers registered a third successive monthly contraction of business activity in April. Moreover, the rate of decline accelerated and was the sharpest since October 2001. At 45.2, the seasonally adjusted Business Activity Index posted its second-lowest reading in the eight-year survey history after falling for the fourth month running.

Commenting on the survey, Eunan King – Chief Economist at NCB Stockbrokers – said:
“The index of the overall level of business activity in April was only marginally above the low seen in October 2001, though the index dipped to close to these levels in the middle of 2003, as the Iraq war got underway. The picture for new business, outstanding business and employment is not dissimilar. Confidence is, however, below the 2003 level, though still comfortably above the 2001 low.The main reasons cited for the weakness of the indices relate to the construction sector and deteriorating global economic conditions. Input costs accelerated while prices charged remained fairly static, leading to deterioration in profitability. Overall, not a good story for the service sector."."

Data for April signalled the second-sharpest fall in Irish service sector business activity in the eight year survey history. The sharp decline in activity was widely attributed to lower new business levels as firms reported reduced property and construction related activities in particular.

Irish service providers' new business volumes declined for the third month running in April. The rate of new business contraction was solid, although slightly weaker than in March. There were reports that the poor economic health of the construction sector was adversely affecting demand. Firms also mentioned deteriorating global economic conditions and greater competition.

Service sector employment declined for the second month in a row in April, although at only a marginal pace. Where a reduction in staffing levels was recorded, this was linked to lower new business volumes and ongoing economic uncertainty.

Input cost inflation accelerated to its sharpest rate for twenty-two months in April. The substantial rise in costs was linked to higher staff salaries and increased energy and transport costs.

Increased overheads underpinned a slight rise in service companies' output prices in April. Greater competition and reduced new business led to lower rates charged at some firms.

Business confidence

In April, confidence regarding activity in a year's time was at its lowest since September 2001. Anecdotal evidence suggested that worsening economic conditions had dampened expectations, while the continuing credit crisis and weakness of the construction sector also contributed to a negative outlook. Nevertheless, service firms were optimistic overall, expecting that merger activities and marketing campaigns would lead to growth in the year ahead.

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