Euro zone services growth cooled more than expected in December as the banking sector stalled, while a marginal decline in manufacturing growth was in line with forecasts, a key survey showed today.
But although growth slowed cost inflation remained close to a seven-year high in the dominant services sector while prices charged accelerated, exacerbating a dilemma for the European Central Bank, which is expected to hold rates throughout 2008.
The RBS/NTC Economics Flash Eurozone Services Purchasing Managers' Index fell to 53.2 in December from 54.1, its lowest since June 2005 and below forecasts for a dip to 53.9. Manufacturing growth cooled more modestly, as expected, with the factory PMI down to 52.5 from November's 52.8 and well above the 50.0 mark that divides growth from contraction.
NTC said the survey was conducted December 4th to 14th, straddling the time when global central banks said they would join forces in money market operations to be conducted this week to aid a credit crisis gripping markets.
Financial markets saw little reaction to the report, although most analysts said they were disappointed that the services component did not hold up better. The survey's sponsor said the fall probably mainly stemmed from financial services.
The larger fall in the services sector hit the composite index, which sank to 53.3 from 54.1, its lowest level since August 2005.
The services PMI was largely dragged down by a two-point drop in incoming new business to 52.0 in December, tumbling to a level not seen since March 2005. Yet the business expectations index for the services sector picked up in December to 60.7 from 58.5, giving a signal of a possible pick-up in activity to come.
Inflation pressures lingered, with the prices charged index climbing to 54.0 from 53.6 the previous month, back to levels seen in better times for the euro zone economy in June. The input prices index eased slightly to 63.2 from 63.4 in November, still close to a seven-year high as energy and food prices soared. There was some evidence of a pick-up in wages.
Employment held at a robust 54.5 in December, just shy of the 54.6 hit in November, but still way down on the 56.4 touched in July.
On the manufacturing side new orders growth slipped to 51.7 from 52.8, while new export orders eased to 52.3 from 52.5. But the decline overall was much less pronounced than in the services sector.