Eurozone Service Sector Expansion Continues in March

06 April 2004

The Reuters Eurozone Service Sector Business Activity Index fell from 56.2 in February to 54.4 in March -- an easing in the rate of expansion for the second month in a row. Despite this slight deceleration, at any level above 50.0 the index signals expansion of activity, making March the ninth consecutive month of growth.

The Eurozone comprises the eight largest European economies (Austria, France, Germany, Greece, Ireland, Italy, The Netherlands and Spain) within the twelve-nation euro currency zone,

Changes in the key indices for March were as follows …

Business Expectations
The index dropped from 69.8 in February to 66.1 in March, the decline pointing to an easing in the level of optimism for the second successive month. The softening of optimism largely reflected a marked downturn in confidence in Spain, attributed to the Madrid bombings, but confidence also dropped sharply in Germany and slipped in both Italy and Ireland. Only in France did expectations for the year ahead improve.

Incoming New Business
At 53.6 the index remained well above the 50.0 no-change level to indicate a rise in new business for the eighth successive month. But the rate of increase slipped for the second month running, reflecting slower growth in all countries surveyed. France recorded the strongest expansion of new business, followed by Ireland.

Outstanding Business
At 50.7 this index registered an increase in backlogs of work for the fifth month in a row. Rising backlogs paint a markedly different picture from that seen throughout the two-and-a-half-year period prior to last November, when weak demand and spare capacity caused backlogs to fall continuously. However, the rise in backlogs in March was only slight, linked to slower growth of new business.

Employment again fell, albeit only modestly, for the nineteenth time in the past twenty months, although the rate of decline eased as the index rose to 49.3 from 48.2 in February. The decline is attributed to firms' current tendency to raise productivity rather than recruit new staff. Falling employment in Germany was almost entirely offset by rising staff levels in all other countries surveyed, although growth in both France and Italy was limited.

Input Prices
These remained largely subdued, the index falling for the third month in succession, down from 54.7 in February to 54.3, signalling an increase in costs on the previous month but a rate of inflation substantially below the survey’s long-term average of 56.9. Higher fuel prices were reported to have increased costs in all countries, as did upward wage pressures in Spain and, to lesser extents, France and Italy.

Eurozone Service Sector Indexes are currently based on data from panels for Germany, Italy, France, Spain and Ireland. Combined, these countries account for an estimated 83% of Eurozone private sector services output. The monthly survey data cover around 2,000 companies.

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