Eurozone services sector grows faster than expected during tough time for bloc

Growth in the Eurozone’s services sector beat predictions in March, with Germany, Spain and Ireland leading the pack, it was revealed today.

The services purchasing managers’ index (PMI) for the single currency bloc rose to 53.3, its highest level since November 2018, and up from a score of 52.8 in February. A number above 50 indicates growth.

Read more: Eurozone manufacturing sector contracts with Germany shrinking fastest

Economists had been expecting a score of 52.7 in the PMI, which gives a comprehensive picture of the health of the sector.

Higher demand in the sector led to firms hiring staff at a solid rate, IHS Markit, who released the data, said. Supporting the upturn in overall activity was a rise in business from new customers, which grew to the strongest degree in four months.

Resilient domestic demand in Germany helped it achieve a PMI score of 55.4. In Italy, services business activity increased at its fastest pace since September 2018, with its PMI reaching 53.1 in March. 

Michael Hewson, chief market analyst at CMC Markets UK, said the stock markets had responded well to services data. “Investors have taken this as yet more positive hooks to hang on the decent start we’ve seen so far this month, as we start quarter two, led by the Italian FTSEMib which has risen over 20 per cent from its December lows.”

In France, however, the services sector contracted in March, with PMI falling to 49.1 from 50.2 in February.

Chris Williamson, chief business economist at IHS Markit, said: “The service sector has managed to sustain a relatively resilient rate of growth but has also lost momentum in recent months. This should come as no surprise as history tells us that robust service sector growth usually depends on a healthy manufacturing economy.”

However, IHS Markit’s composite PMI, which assesses both the services and manufacturing sectors, fell to 51.6 from 51.9 today.

This modest growth was a result of a poor performance by the Eurozone manufacturing sector in March. It contracted last month, with key producer Germany leading the biggest fall.

IHS Markit said that the current performance of European business means GDP will rise by just 0.2 per cent in the first quarter.

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Williamson said: “Unless manufacturing pulls out of its downturn the overall pace of economic growth will likely weaken in the second quarter as the malaise spreads to the service sector.”

“Only at the turn of the year, when business was hit by headwinds such as widespread ‘yellow vest’ protests in France and an auto sector struggling with new emissions regulations, has growth been slower over the past four years.”