Eurozone Service Sector Growth Hits 13-Month High

04 September 2003

The Reuters Eurozone Service Sector Business Activity Index, prepared by NTC Research, rose from 50.2 in July to 52.0 in August – the fastest growth of activity since July 2002.

The index has now risen for four consecutive months, a turnround in the business activity trend from contraction between February and June to renewed growth.

For the first time in thirteen months, August witnessed all four of the big Eurozone national economies – France, Germany, Italy and Spain – recording growth in service sector activity. Most significant was Germany’s return to growth, continuing the upward trend evident in recent months.

Key data from the August service industry indices are:

Business Expectations
The Business Expectations Index, which measures optimism regarding business activity over the coming twelve months, rose for the third successive month in August to reach a twelve-month high. Confidence was highest in Spain, for the fourth straight month, followed closely by Italy, France and then Germany.

New Business
The Incoming New Business Index rose above 50.0 for the first time in eight months, hitting 51.8. Although registering only a modest increase in demand for services, the index has recovered sharply from an eighteen-month low in May to reach a thirteen-month high in August. The main force behind the rise in the index in August was the first increase in new business in Germany since July 2002

Employment in the Eurozone service sector fell for the thirteenth straight month in August, with the recent growth of new business and improved business confidence merely easing the rate of contraction. The Employment Index rose from 45.8 in July to 46.2, its highest level for eighth months but nevertheless still signalling a steep rate of job losses.

Input Prices
The Average Input Prices Index rose for the second month in a row in August, up from 52.9 to 54.5. The rise signalled an increase in the rate of cost inflation to a four-month high. The recent strengthening of the US$ against the euro was reported to have pushed up some imported input costs and energy prices were reported to have risen. However, the overall rate of increase remained well below that seen in the lead-up to the Iraq war. Average prices charged fell for the thirteenth month running in August, suggesting that service providers’ pricing power remained weak. Charges fell in all four main economies.

The PMI is based on information provided by around 3,000 manufacturers across the Eurozone, comprising the eight largest European economies within the twelve-nation euro currency zone – Austria, France, Germany, Greece, Ireland, Italy, The Netherlands and Spain. It provides hard data on recent changes in activity levels rather than business sentiment or expectations. As such, the index provides the earliest indication of actual business conditions.

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