The deep recession in the euro zone services economy eased in July, but firms cut jobs faster than previously thought which could temper any recovery, a survey showed today.
The data confirm that the euro zone is edging back towards economic growth as a slowdown in new business taken on by firms continues to abate. Yet any recovery could be slow as the number of unemployed soars and consumers remain reluctant to spend.
Markit's Eurozone Services Purchasing Managers Index of around 2,000 companies ranging from cafes to banks rose to 45.7 in July from 44.7 in June, its highest level since last October, but still below the 50.0 mark dividing growth from contraction.
That was slightly up on the flash estimate of 45.6, helped by a marginal revision upwards in new business.
Earlier data showed Germany's services sector leapt close to recovery levels in July, while an improvement was also seen in Italy. France, the euro zone's second largest economy, went against the trend and saw its services recession deepen, as did Spain, by far the weakest of the top four euro zone countries.
"Services continue to lag largely due to weak domestic consumption as employment continued to fall, which will most likely act as a drag on any recovery," said Chris Williamson, chief economist at data provider Markit.
The data add to growing evidence that the euro zone economy is creeping out of recession, but will require a delicate touch by the European Central Bank, which is widely expected to leave rates at a record low of 1.0 percent for some time.
An easing in the decline in the services sector, combined with improving data for the manufacturing sector, took the Composite index of the two to 47.0 from July from 44.6 in June, its highest level since last August. That was also just up on the 46.8 flash reading.
But July marked the first month in 13 when the manufacturing index was higher than that covering the euro zone economy's dominant services sector.
The Composite index was boosted by a leap in the new orders index to 46.2 from 43.8, its highest level since last August.
But the encouraging, forward-looking news contrasted with the PMI's employment index, which slipped to 44.3 in July in the services sector from 44.5 in June. That was revised down sharply from the 44.9 flash estimate.
Official unemployment in the euro zone rose to a 10-year high in June of 9.4 per cent, and is widely expected to smash through the 10.0 per cent mark before long and rise through 2010.
The tough conditions were underlined by Germany's Metro, the world's fourth largest retailer, on Monday when it reported falling earnings in the second quarter, and said retail sales would fall further in coming months mainly due to rising unemployment.
The survey also showed that price pressures remain very low throughout the euro zone as businesses battle to keep going by slashing costs to boost demand.
The input prices index fell to its lowest level in the survey's 11-year history in July, while the prices charged for services remained at weak levels.
That chimed with official data in the euro zone, which showed inflation fell 0.6 per cent in the 16-nation bloc last month, the second month of negative inflation since the creation of the currency area in 1999.
Reuters