The euro zone's services economy returned to growth for the first time in 16 months in September at a slightly better rate than first expected, but job losses grew, a key survey showed today.
The data highlighted that while the euro zone may return to growth in the third quarter, climbing unemployment across the 16-nation bloc will likely dog a gradual recovery, while demand remains at still weak levels.
Markit's final Eurozone Services Purchasing Managers' Index of around 2,000 companies ranging from hotels to banks, rose to 50.9 in September from 49.9 in August, its highest since April 2008.
That was the first time it moved over the 50 mark that separates growth from contraction since May 2008, and was revised up from the 50.6 flash reading.
The euro zone's performance was helped by a leap from French services into clear growth territory at 54.8 from 51.3 the previous month. Germany too held above the 50 point, although the index retreated slightly from its August level, while both Italy and Spain made progress towards recovery.
"Although the rise was only very modest, signs that the recovery has spread from manufacturing to services add to hopes that the upturn can become self-sustaining," said Chris Williamson, chief economist at data provider Markit.
A revision up in the overall PMI level contrasted with a sharp revision in the other direction of the employment index, which fell to 45.6 from 47.8 in August, down from the 46.4 flash level.
The euro zone economy is widely expected to grow again in the third quarter of the year after contracting by 0.1 per cent in the second and a record 2.5 per cent in the first.
But any serious growth momentum could be checked if demand remains relatively weak. For now any signs of growth will be welcome even if it will take a long time before any government or European Central Bank stimulus measures are withdrawn from a still weak economy.
A rise in both the services and manufacturing PMI, the latter released last week, took the Composite PMI up to 51.1 from 50.4 in August, slightly higher than the 50.8 flash. That was the highest level since May last year.
There were other positive signs in the surveys too, indicating that a trend was continuing towards recovery.
The Composite backlogs of work index was revised up to 46.5 from the 45.7 flash level, where it had been the previous month too. That was its highest since June last year and suggested a slowdown in work taken on by companies was fast easing.
Company confidence was also picking up, as business expectations in the services sector for the year ahead jumped to their highest since January 2006.
The survey showed signs that inflation pressures were beginning to pick up. While still holding in negative territory, costs paid by companies for goods rose to their highest since last November, the composite index showed.
That trend upwards may chime with expectations of a steady move higher in official inflation in the euro zone towards the end of the year.
Inflation held below zero for the fourth month running in September at -0.3 per cent, a long way from the ECB's close to 2 per cent target.
Reuters