Services sector growth helps quell double-dip recession fears
Published 05/08/2010 | 05:00
FEARS of a double-dip recession receded after data from Ireland and abroad suggested the critical services sector performed well last month.
At home, the NCB services purchasing managers index (PMI) expanded for the fourth month in a row in July.
The reading of 55.7 is its highest level since October 2007 and there was further encouragement from the fact that it was primarily driven by domestic activity.
A marked fall in the growth of new business orders from an index of 54 in June to 52.1 was mainly due to weaker export orders, down to 51.5 from 58.6. Any figure over 50 indicates growth.
But this apparent weakening of foreign demand was offset by good surveys from elsewhere.
In the US, the Institute for Supply Management's PMI for services rose to 54.3 from 53.8 in June, much better than analysts had expected.
The dollar rose from an eight-month low against the yen and strengthened for the first time in three days versus the euro.
The yen had rallied earlier on speculation that the Federal Reserve might signal additional stimulus measures at next week's policy meeting, even though Fed officials have downplayed the possibility.
"You're seeing dollar recovery with these data releases," said Brian Kim, a currency strategist at UBS in Stamford, Connecticut. "It might not be as bad people are saying."
However, the UK gauge of service activity dropped to 53.1 from 54.4 in June -- the lowest in 13 months and below analysts' expectations, as budget cuts kicked in.
A survey of eurozone services, which account for about 60pc of the region's gross domestic product, conducted by Markit Economics, rose to 55.8 in July from 55.5 in June.
A composite index based on both industry and services rose to 56.7. "This level is consistent with euro-area real GDP growth of 0.7pc," said Nick Verdi, an economist at Barclays Capital in London.
Activity in Germany, Europe's largest economy, grew again but not as strong as initially estimated and there is a growing divide between eurozone economies.
Italy's service sector shrank after seven months of growth, while in Spain the pace of growth stumbled.
"There is a worry about the divergence. The countries on the periphery will suffer more," said Silvio Peruzzo, economist at RBS.
"With global growth beginning to slow, as evidenced by the slowdown in export orders, the domestic economy will need to contribute," said Brian Devine, chief economist at NCB Stockbrokers.
"However, demand remains fragile. With interest rate hikes squeezing incomes before ECB (European Central Bank) base rates have even begun to rise, there will need to be job growth towards year end and into 2011 to push the recovery forward."