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Upturn in service sector could save eurozone from recession


THE eurozone may escape recession thanks to a surprise upturn in the service sector this month but the overall economy is struggling to gain any traction outside Germany and France, surveys showed yesterday.

Markit's Flash Eurozone Purchasing Managers' Composite Index, a closely watched indicator of overall economic performance, showed the eurozone economy grew in January for the first time since August, confounding forecasts for a contraction.

The flash estimates only look at the continent's bigger economies and exclude Ireland, where the most recent data shows that both the manufacturing and services sector contracted in December.

Survey compiler Markit said that, if sustained, yesterday's data pointed to no growth in the first quarter -- but no contraction either.

Germany's service sector expanded at its fastest pace in seven months in January -- far quicker than expected -- while manufacturing business grew for the first time in four months, according to a PMI survey.

France's service sector grew at its fastest pace since August, but manufacturing shrank for the sixth straight month. Business activity contracted across the rest of the 17-member bloc, where demand has been hit by tough austerity measures and waning confidence as the region struggled to contain the crisis.

The eurozone composite PMI jumped to 50.4 from 48.3 in December, its highest in four months, and breaking above the 50 level that marks growth in activity. The reading easily beat the highest forecast of 49.5 in a Reuters poll and a median prediction of 48.5.

"The numbers are very encouraging. We are just seeing more and more evidence that things . . . in the eurozone, or at the very least in the core, are bottoming out," explained Alan Clarke, an economist working out of Scotiabank.

A Reuters poll last week predicted that the eurozone would be mired in a mild recession until the second half of this year, shrinking by around 0.3pc for 2012 as a whole.

While yesterday's data suggests the economy is doing slightly better than expected it is still very weak outside the core. "They beat expectations, but the manufacturing sector appears to be contracting and services is broadly flat," said Peter Dixon at Commerzbank.

Irish Independent