Despite falling to 56.7 in April; a figure which failed to match analysts’ expectations for growth of 56.9; the slowdown follows a month in which the pace of service activity was at four year high. The latest Purchasing Managers Index for Service data; which was released earlier this morning by Markit Economics; illustrates the extent to which the European service sector has advanced the region’s economic recovery. At the same time, demand for services also increased to their highest level since August 2007.
Employment rose at its second fastest pace since April 2008; a result of considerable gains in new business. Whilst gains in employment are positive, the report also highlights a rise in backlogs exceding those figures identified in the flash forecast. This figure has now risen for six consecutive months.
Despite remaining high by historical standards, optimism surrounding rate of growth looks to be waning. Expectations surrounding activity levels in 12 months time now stands at a six month low; concerns that are only likely to be compounded by the announcement that prices charged for services rose at their strongest rate in nearly three years. With only a modest slowdown in average input costs; a figure which means little following March in which the figure reached a two and a half year high; rising fuel and food costs will continue to lead producers to pass these costs onto the consumer.
The report once again highlighted the growing contrast between the contributions of the eurozone’s member states. Whilst France saw considerable gains in the rate of both activity growth and new business; both of which recorded their fastest gains since 2000; Germany remained strong despite seeing its expansion of activity dip to a six month low. At the same time, both Spain and Ireland saw near stagnant growth; whilst Italy recorded only modest gains.
Despitethe declines in Services PMI, Chris Williamson; Markit’s Chief Economist; has advised that the data is consistent with Quarterly growth of around 0.7% to 0.8%. Indeed Williamson continues “that’s similar to the pace seen in the first Quarter as a whole, which is likely to have been the strongest gain in services GDP since early-2008.” At the same time though, Williamson acknowledged that contrasting member state performance was concerning, warning that France and Germany were now facing inflationary pressures whilst the periphery nations continued to stagnate. Citing rising emploment as a driving force behind rising demand in France and Germany, Williamson warned that a “two-speed service sector” looks set to continue.
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