THE EURO zone’s dominant service sector grew at its fastest pace in two years in November, suggesting an economic recovery will continue in the fourth quarter, a key survey showed yesterday.

The data indicates the euro-zone economy made further recovery progress after emerging from its worst recession on record in the third quarter, although the rate of growth to come is likely to be weak.

Markit’s Eurozone Flash Service Purchasing Managers’ Index (PMI), composed of surveys of about 2,000 companies ranging from cafes to banks, rose to 53.2 in November from 52.6 in October, its highest since November 2007.

That was the third month in a row the index was above the 50 mark separating growth from contraction, and beat economists’ expectations for it to hit 52.8.

Earlier data showed Germany’s industrial and services economies picking up again, while France powered forward with its services PMI cruising to its highest level since October 2006.

Both countries made their way out of recession in the second quarter of the year, followed by Italy in the third, leaving only Spain among the four largest economies still stuck in a heavy recession funk.

“There is not much to worry about the euro-zone economy growing in the fourth quarter, but the data suggests that the third quarter may have been a peak and we will see subdued growth as we head into next year,” said Chris Williamson, chief economist at Markit.

The euro-zone economy grew by 0.4 per cent in the third quarter and a Reuters poll showed it growing by 0.3 per cent in the fourth. Growth was forecast to remain sluggish throughout 2010, which may help the European Central Bank keep interest rates at record low levels for some time.

That view was supported by the PMI’s new business index falling to 51.2 from 52.7 in October, indicating companies were still finding it tough to drum up demand.

Last week the Organisation for Economic Co-operation and Development (OECD) said the euro-zone economy should grow by 0.9 per cent in 2010 after a contraction of 4 per cent this year.

The euro-zone manufacturing sector, which drove a large part of the return to growth in the third quarter, also performed well in November. The flash manufacturing index rose to 51.0 from 50.7 in October, its highest level since March 2008.

The index was pulled higher by moves higher in output, new orders and exports. Manufacturing performance came despite a strong euro, up about 6 per cent against the dollar since the start of the year, which has bit into euro- zone exporters.

The rise across the services and manufacturing sectors took the composite index to 53.7 from 53.0 in October, just above economists’ expectations. – (Reuters)