Eurozone Service Sector Rebounds Despite Job Cutting

05 February 2004

Having eased slightly in December, growth of service sector business activity in the euro area accelerated again in January, according to the Reuters Eurozone Service Sector Purchasing Managers’ Indices.

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. Here is the report's seasonally adjusted headline data for January …

Business Activity
The Business Activity Index rose from 56.6 in December to 57.3. The latest expansion of activity was only marginally weaker than the three-year high recorded in November. Business activity has now increased for seven consecutive months and was broad-based across the Eurozone's four largest economies. France, Spain, Italy and Germany recorded the strongest pace of growth, with activity rising at the fastest pace since December 2000

Business Expectations
The Business Expectations Index rose to a twenty-two month high of 71.5, up from 71.0 in December. The index, which measures optimism regarding business activity levels over the next twelve months, was boosted by improved confidence in France and Spain (the former showing a particularly strong surge). In contrast, expectations of future growth slipped in Germany and Italy, linked to concerns over the strength of the euro and subdued consumer confidence.

New Business
The Incoming New Business Index edged up to 57.0 in January, from 56.9 in December, indicating a very marginal improvement in the rate of increase. Incoming new business has now risen for six months in a row, with growth in January just falling short of the thirty-eight month high seen in November. All Big Four Eurozone nations reported growth of new business.

Outstanding Business
The Outstanding Business Index rose from 52.2 in December to 52.5, the latest increase being the largest since October 2000. All B-4 nations reported mounting backlogs of work, although France recorded by far the strongest rate of escalation. Growth of outstanding work was primarily attributed to a short-term lack of capacity to meet buoyant growth of new business.

The Employment Index fell from 49.6 in December to 48.7, registering a mild increase in the rate of job losses. The decline was driven by a marked fall in employment in Germany. Staffing levels rose in France, Italy and Spain, but even in these countries growth was only modest as firms focused on cost cutting and raising productivity.

The Prices Charged Index dipped from 50.3 in December to 50.0, registering no change in output prices during the month. An inability to raise charges (particularly evident in Germany) was attributed to intense competition. The strong euro was also seen to have forced firms to cut charges to compete with cheaper services offered by overseas rivals.

The Eurozone Service Sector Indexes, produced for Reuters by NTC Research, are currently based on data from separate panels in Germany, Italy, France, Spain and Ireland. Combined, these countries account for an estimated 83% of Eurozone private sector services output. The data cover some 2,000 companies, with the contribution from each company weighted according to company size to produce individual country indices.

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