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Eurozone services sector expands for the first time since April 2008

06 October 2009 11:39 (UTC +04:00)

Baku-APA-Economics. The euro zoneâ€™s economy probably grew in the third quarter, but economists remained cautious about the expected recoveryâ€™s sustainability amid slowing consumption and still-rising unemployment, WSJ reported.
The euro-zone services sector expanded in September for the first time since April 2008, as the purchasing managersâ€™ index rose to 50.9, from 49.9 in August.
The index -- above the "boom or bust" line of 50 that indicates whether the sector is expanding or contracting -- was boosted by an increase in new orders and business optimism, data from Markit Economics showed.
However, a subindex showed that the employment balance fell in September, indicating companies cut jobs at a faster pace than in August. And the European statistical agency Eurostat showed retail sales fell for a 15th straight month in August from a year earlier, as sales of nonfood items remained low.
The mixed picture highlighted the quandary faced by the European Central Bank, where policy makers will soon need to decide how long they should keep the current expansionary monetary regime.
Currently, the ECB has an interest rate of 1%.
"Given the importance of the services sector, the return to growth in September indicated by the purchasing managersâ€™ survey reinforces expectations that the euro-zone economy expanded in the third quarter after five quarters of contraction," said Howard Archer, chief euro-zone and U.K. economist for IHS Global Insight.
He added, though, that "relapses" remain possible, leaving the ECB without enough evidence to tighten policy at this point.
Given the boost from the service sector, the composite euro-zone PMI rose more sharply than expected, to 51.1 in September, Markit reported. That index first rose above the 50-point line in August.
Still, the pace of job losses accelerated in September as work backlogs fell and companies had less ability to charge higher prices.
"Looking ahead, concerns about income and job prospects will probably continue to act as a restraining force on high street spending," said Martin van Vliet, euro-zone economist at ING. In Britain, which is outside the euro zone, the services PMI was broadly in line with the euro-zone survey. Markit and the Chartered Institute of Purchasing and Supply said the U.K. services index rose to a two-year high of 55.3 in September, and business confidence for the sector also rose to a two-year high and above the historic average level.