The euro zone's dominant service sector grew at its fastest pace in nearly three years this month but the pace of growth in the manufacturing sector eased, a survey showed today.
Markit's Eurozone Flash Services Purchasing Managers' Index, made up of surveys of around 2,000 businesses ranging from hotels to banks, rose to 56.0 in May from 55.6 in April, its highest reading since August 2007.
That marks the ninth month the index for the services sector was above the 50.0 mark that divides growth from contraction and was considerably above a Reuters poll consensus of 55.5.
The services new business index slipped a point from April, however, although still remaining comfortably above the 50 mark.
The euro zone manufacturing sector, which drove a large part of the economy's return to growth in the third quarter of last year, saw the pace of growth slow from last month's near four-year high.
The flash manufacturing index dropped to 55.9 in May from 57.6 in April, way off forecasts for 57.5, while the output index sank to 56.7 this month, from 61.2 in April which was the the highest since June 2000.
The composite index, made up from the services and manufacturing sectors and often used to predict overall growth, fell to 56.2 this month from 57.3 in April, missing expectations for 57.0.
"The flash PMI highlights the growing fragility of the euro zone recovery. Although remaining consistent with GDP rising at a quarterly rate of 0.5-0.6 per cent, worrying signs of weakness have appeared," said Chris Williamson at data provider Markit.
The euro zone economy escaped from its worst post-war recession in the third quarter of last year. Preliminary data last week showed the economy grew a paltry 0.2 per cent between January and March after remaining flat in the final three months of 2009.
It is seen growing 0.5 per cent in the current quarter and then 0.4 per cent in the following two quarters.
Earlier flash PMIs showed the pace of growth in Germany's manufacturing industries slowed from last month's record high while its service sector also grew at a slower rate.
But neighbouring France saw its services segment grow at a rate not seen since August 2006 although its manufacturing sector expanded at a slower pace than April's near four-year high.
The euro zone's manufacturing sector was boosted by a tumbling euro, which hit a four-year low on Wednesday on sustained concerns about the unity of the euro zone.
The new export orders index remained near March's 10-year high at 58.6, just down from April's 58.7.
The weak euro and rising fuel costs meant the service sector input price index was above 50 for the sixth month but firms were unable to pass these higher costs on, with the output price index dropping to 47.5 from April's 48.3.
"Weak demand and intense competition continued to drag down prices," Mr Williamson said.
Data released on Tuesday showed inflation in the 16-nation region was at 1.5 per cent in April, well below the European Central Bank's 2 per cent target ceiling.
Policymakers will get some cheer from the composite employment index which rose to 50.4 this month, the first time it has been above 50 since June 2008. Unemployment in the region was at 9.6 per cent in March, unchanged from February.
Reuters