Europe's Service Sector Celebrates Best Growth in Three Years

The Reuters Eurozone Service Sector Business Activity Index rose from 56.0 in October to 57.5 in November, indicating the largest monthly expansion of activity since October 2000.

Activity has risen continually over the past five months, with the rate of growth picking up sharply throughout this period as demand strengthened both for business and consumer based services.

Key indicators from the November data are …

• Business Expectations
The Business Expectations Index hit a twenty-month high in November. The index, which measures optimism regarding business activity levels over the next twelve months, was driven up by improved optimism in Germany and France. However, confidence in both countries remained weaker than in Italy and Spain (where optimism dipped slightly).

• New Business
The Incoming New Business Index rose sharply in November, up from 55.5 in October to 57.9. New business has risen for four successive months with the rate of growth accelerating sharply over this period to reach a thirty-eight month high in November. Backlogs of work increased for the first time since June 2001.

• Outstanding Business
The Outstanding Business Index rose from 49.9 in October to 51.4 (its highest level since December 2000). Higher backlogs of work were linked to a short-term inability of firms to expand capacity sufficiently to meet growth of incoming new business. Most marked was a steep rise in outstanding business in France, which saw by far the sharpest rise in backlogs of all big-4 national economies (France, Germany. Italy and Spain).

• Employment
The Employment Index rose from 48.5 in October to 50.4 in November, breaking through the 50.0 no-change level as increasing numbers of firms returned to the job market in order to expand capacity. Service sector employment rose for the first time since July 2002 -- notably in Spain, Italy and France (with the rate of growth picking up in each case), but continuing to fall in Germany.

• Prices
Average input prices rose at the fastest rate for eight months in November. Although higher energy prices and rising wages and salaries were seen to have driven up costs, the overall rate of increase remained below the average recorded since the survey began in 1998.

Eurozone Service Sector Indexes are currently based on data from panels for Germany, Italy, France, Spain and Ireland. In aggregate these countries account for an estimated 83% of Eurozone private sector services output.

Data sourced from: NTC Research; additional content by WARC staff