Euro zone services growth slumped significantly below forecasts to a rate not seen in over four years this month, but manufacturing growth remained unchanged from December, a key survey showed today.
The RBS/NTC Flash Eurozone Services Purchasing Managers Index fell to 52 in January from 53.1 in December, its lowest since August 2003 and well below economists' forecasts of 52.8.
However, the survey conducted between January 11 thto 22nd found the equivalent factory PMI remained at the same level as December's 52.6, considerably above forecasts of a drop to 52.
The index measuring incoming new business in the service sector fell to 50.2, its lowest level since July 2003 and approaching the 50 dividing mark between growth and contraction, giving a further indication of trouble ahead.
The US Federal Reserve unexpectedly slashed its benchmark lending rate by 75 basis points on Tuesday between regular meetings to 3.5 per cent in a bid to lend support to an economy that is feared to be in or on the verge of recession.
The Bank of England is also widely expected to cut rates at its February meeting and the European Central Bank could follow suit later this year, some economists say, despite hawkish rhetoric from policymakers.
"Our expectation remains that the extent of the slowdown in the economy will eventually force the ECB's hand to lower its key interest rates in Q2," said Jacques Cailloux, chief euro economist at RBS.
However, despite tumbling equity markets around the world, business expectations in the dominant services sector climbed to a six-month high as hopes remain pinned on central banks taking an axe to interest rates to prevent a global downturn.