London: Deterioration in the euro zone’s dominant services sector slowed slightly in January, but still remained deeper than expected, showing the 16-nation bloc remains in the clutches of recession, data showed on Wednesday.
The slight uptick in the Markit euro zone services sector index for January provides some welcome news as it is the first rise since August, even though it marks the eighth month the index has been below the 50 mark that divides growth from contraction.
The euro zone services Purchasing Managers’ Index of around 2,000 companies covering banks to cafes rose to 42.2 in January from 42.1 in December, but was below the 42.5 flash estimate, which was also the median forecast of 30 economists.
The services downturn accelerated in the region’s largest economy, Germany, as it did in manufacturing. Conditions also worsened more rapidly in Spain than they did the month before.
But the decline across the services sector slowed markedly in the other two economies that make up the euro zone’s ‘big four’ — France and Italy.
Data released on Monday showed the steep pace of contraction in the euro area’s manufacturing sector also eased slightly in January. Taken together, the Composite Index rose to 38.3 in January from 38.2 in December, but was below the 38.5 forecast by economists.
The economy’s dire state, along with further signs of falling inflation, will give the European Central Bank more impetus to cut interest rates again to 1.5% by March, as they are widely expected to do.
However, the survey’s business expectations index climbed to 46.4 in January from December’s near-record low of 42.3, an encouraging sign that the worst may have passed, despite being revised down slightly from the flash reading.
The fourth quarter of 2008 was expected to have been the worst the euro zone economy suffers, forecasters in a Reuters poll said last month, although the bloc will not emerge from recession until at least the second half of 2009.
The Markit survey found firms are increasingly turning to price cutting as a means to spur demand for their services, with the prices charged component falling to a record low despite only a small fall in the input price index.
“With consumer and corporate demand for services continuing to slump, increasing numbers of firms are resorting to discounting — as evidenced by the survey record fall in average selling prices,” said Chris Williamson at data compiler Markit.
Inflation in the euro-zone fell to 1.1% in January, significantly below the central bank target of just under 2% and a fraction of the 4% seen in the middle of last year.
Companies across the region are battling against tough conditions with credit remaining tight as the global economy remains in recession and employment levels have remained in negative territory as firms lay off staff to cut costs.
The service industry has seen thousands of people laid off last month with financial firms and banks among others parting company with huge numbers of staff.