Services growth shows signs of waning momentum

Services growth shows signs of waning momentum
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First Published: Thu, Jun 03 2010. 04 08 PM IST
Updated: Thu, Jun 03 2010. 04 08 PM IST
London: Service sector growth continued but at a slower pace in the big emerging economies and Britain during May while a resurgent France helped the euro zone buck that trend, surveys showed on Thursday.
The euro zone’s dominant service sector appears unfazed so far by a crisis of confidence in the fiscal health of euro zone member states that has wreaked havoc on financial markets.
The Markit Eurozone Services Purchasing Managers’ headline business activity index for the 16-nation currency bloc rose to 56.2 in May from 55.6 in April, the ninth month in a row it has been above the 50 mark that separates growth from contraction and slightly higher than a preliminary reading.
Activity at French firms grew at the fastest pace in nearly four years in May, although their German and Italian peers showed signs of struggling to keep up, according to the PMI surveys for individual euro zone countries.
But swingeing austerity measures in the pipeline and further damage to the stability of the euro zone could yet hurt the performance of services companies.
Euro zone retail figures for April showed a sharp fall, against market expectations, underlining the fragility of consumer demand vital to service industries.
“A sluggish labour market, tighter fiscal policy and rising uncertainty about the economic outlook point to ongoing consumer weakness in the coming months,” said Nick Kounis, economist at Fortis Bank.
The purchasing managers surveys recorded order books expanding at a slower rate for service companies ranging from banks to restaurants in the UK, euro zone and China, although the jobs outlook was generally brighter.
Firms in the euro zone ended a two-year stretch of job losses as the headline PMI index there hit its highest since August 2007, while services workforces in India and China continued growing solidly.
But British companies, worried about impending deep public spending cuts, shed staff in May. The UK PMI headline activity index edged up to 55.4 from 55.3 in April.
“(It) provides further evidence that the recovery in the biggest part of the economy is struggling to pick up pace,” said Vicky Redwood of Capital Economics. ^^
The battered euro up above $1.22 on Thursday, helped by a rebound in stock markets. The currency lost 7% of its value against the dollar in May alone.
Stocks were responding more to upbeat US data showing signs of accelerating recovery there, ahead of jobs data on Friday which President Barack Obama said on Wednesday would show strong growth.
Emerging Stars?
The services sectors of China and India, which represent a much smaller portion of their economies than rich Western ones, continued their solid growth in May but at a slower pace.
The Indian services PMI fell to from a 21-month high of 58.2 in May from 62.1 last month, hurt by slowing growth in business expectations and prices charged.
China’s services PMI likewise fell to 56.4 in May from 58.5 in April thanks to the government’s efforts to control the economy’s break-neck expansion.
“The slowdown in the services and manufacturing PMIs implies that the ongoing tightening measures are starting to take effect,” said Qu Hongbin, chief China economist at HSBC.
The Organisation for Economic Co-operation and Development last week forecast the Chinese economy would grow 11.1% this year and warned overheating was becoming a problem for policymakers.
India too faces some policy tightening that could crimp the performance of its economy.
Food and fuel inflation quickened in late May to percentages in the mid-teens, increasing the likelihood the Reserve Bank of India will act soon to tighten policy.
On Tuesday, Prime Minister Manmohan Singh described inflation as one of the country’s “major problems” that required firm action.
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First Published: Thu, Jun 03 2010. 04 08 PM IST
More Topics: Economy | Jobs | Services | Employment | India |