Service sector boost for the eurozone

Economics Editor,Sean O'Grady
Saturday 23 February 2008 01:00 GMT
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The slowdown in growth across the eurozone has yet to become acute, according to the latest survey of business sentiment across the Continent, which shows a surprisingly resilient performance this month.

The eurozone Purchasing Managers Index reported especially strong results in the service sector, which were to some extent offset by much weaker returns from industry. The index rose 51.8 to 52.7, ahead of forecasts. However, the figure remains consistent with a slowdown in activity.

Ben May of Capital Economics said: "Overall, there is some relief that the index did not fall again, but it's hardly a sign of strength. We still think that the European Central Bank will be cutting interest rates by the middle of the year."

Other economists agreed. Ken Wattret of BNP Paribas said: "The index remains low by historical standards and is consistent with below potential growth, challenging the ECB's scenario of growth remaining close to its trend rate through 2008. February's rise was the first since June last year and this is very much a blip in an otherwise worsening trend which we would expect to be re-established in the period ahead."

The eurozone statistics were accompanied by particularly gloomy surveys of confidence in France, with orders down and price rises indicating inflationary pressures. Retail sales were depressed. Yesterday, the Euro-pean Commission forecast a rise in eurozone inflation during 2008 of 2.6 per cent, up from the 2.1 per cent predicted in November. Last month, eurozone inflation hit a 14-year high of 3.2 per cent.

Indeed, the European Central Bank faces the most acute policy dilemma among its major counterparts around the world, with eurozone inflation higher and growth weaker than in most regions. European manufacturing has been badly hit by the revaluation of the euro in relation to the dollar.

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