The rate of contraction in the euro zone's dominant service sector eased further in May and business expectations rose to a 15-month high on hopes the worst of the recession is over, key surveys showed today.
Markit revised up its Eurozone Services Purchasing Managers Index to a seven-month high of 44.8 for May from the flash estimate of 44.7, compared with April's 43.8 and economists' forecasts for 44.7.
It said if the current trajectory continued, growth in the sector would return by August.
“There is a good improvement in April and May that provides hope that the contraction in Q2 won't be as bad as in the first quarter,” said Ben May at Capital Economics.
“Nonetheless, the index is still well below the no change line so it's too early to start talking about a recovery quite yet." The euro was little moved on the data.
The 16-nation bloc's economy shrank by a record 2.5 per cent in the first quarter but is forecast to contract at a much less severe pace in the second.
While this is the 12th consecutive month the PMI has been below the 50 mark that divides growth from contraction, the business expectations index rose to a 15-month high of 59.1 from April's 54.4, and above the 58.4 flash estimate, as firms see an improved outlook.
Confidence rose to 12-, 16-, and 27-month highs in France, Germany and Italy respectively, but slumped to a three-month low in Spain.
Although the service sector's new business index climbed from April it remained firmly below the 50 dividing line.
Across the channel, data showed Britain's service sector staged a surprise return to growth in May for the first time in over a year after an increase in new business and the most optimistic outlook since October 2007.
The euro zone composite index, which includes manufacturing data released on Monday, rose to an eight-month high of 44 in May, up from 41.1 in April and just above 43.9 flash and economists' forecasts.
“The composite PMI is suggesting that GDP should be contracting at around half a percentage point in the second quarter, which would compare very favourably to the huge decline we saw in the first quarter,” said Ken Wattret at BNP Paribas.
The composite output price index rose to 40.7 from April's 39.9, but was down from the flash estimate of 41.1, indicating firms are still being forced to heavily discount goods and services to attract customers.
“Current sales are only being achieved by widespread price discounting, meaning profits remain under severe pressure and employment will continue to fall for some time as companies restructure, which is likely to subdue any recovery in demand," said Chris Williamson, chief economist at survey provider Markit.
Reuters