New Business Inflow Slows Again in European Service Sector

06 September 2001

Reuters Eurozone Services' Business Activity Index, published yesterday, fell from 53.2 in July to 52.3 in August (an index rating above 50.0 indicates a growth in activity). However, the fall in the index signalled an easing in the rate of growth to a pace only marginally above the survey record low seen in May.

Growth in the services sector has fallen markedly since peaking in April of last year, reflecting downturns in all main Eurozone national economies. In August, falling activity was recorded in Germany and Ireland. Italy and France recorded the strongest rates of growth, although the pace weakened on July in both countries. Other main points highlighted by the index are …

• Incoming new business fell for the first time in the survey's three-year history in August. Although only marginal (the New Business Index registered 49.9), the decline represents a marked contrast to the robust growth seen throughout last year. Levels of new business fell particularly sharply in Germany (dropping for the seventh consecutive month). A slight decline in demand was also seen in Ireland. By contrast, Italy - followed by France - recorded the strongest pace of growth, although even in these countries the rate slowed on July.

• The Outstanding Business Index registered a reduction in backlogs of work for the fourth time in the past six months in August. The rate of decline accelerated to the fastest since February 1999. Falling backlogs primarily reflected the existence of spare capacity as a result of slower growth of new business.

• Employment growth fell to a new three-year survey low in August. The Employment Index registered 51.9, down from 53.8 in July. Growth has slowed sharply since peaking in June of last year. Employment trends varied markedly by country. The strongest growth continued to be recorded in France, followed by Italy, while Germany recorded the weakest performance, with employment falling for the second time in the past three months.

• The rate of growth of input prices fell to the weakest since May 1999 in August, reflecting lower fuel (oil) prices, softer demand for inputs and weaker wage pressures. Meanwhile, charges for services fell for the first time in two years, reflecting the need for service providers to offer more competitive rates to win business in the face of falling demand. Although only slight, the latest decline represents a considerable turnaround since the survey peak in charges seen just a year ago.

• Business expectations regarding service providers' activity levels in twelve months' time recovered modestly from the all-time survey low seen in July. Nevertheless, the degree of overall confidence remained well down on that seen at the start of the year.

News source: NTC Research