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Thursday, April 3, 2008

German Services PMI and EU Economic Sentiment Indicator March 2008

European services growth slowed in March after the euro rose to a record and the U.S. economic downturn deepened. Royal Bank of Scotland Group Plc said its index of growth in service industries from banks to airlines fell to 51.6 from 52.3 in February. That's lower than an initial estimate of 51.7 published March 20. The index is based on a survey of purchasing managers and a reading above 50 indicates expansion.

In Germany, Europe's largest economy, services growth slowed, with the index dropping to 51.8 from 52.2 in February. Still German services continue to expand, and this gives us yet another measure of the extent to which the German economy - for the time being - continues to resist.

As for the details, new business grew more slowly, as did net hiring. Tim Moore, an economist at NTC, said that on average, figures for the first quarter pointed to the weakest growth in the German service sector in four and a half years.

"With activity growth slowing, and backlogs of work falling for a fourth month running, job creation came under pressure in March and was the weakest since October 2006," he said.

Business expectations among German service firms dipped to their lowest level in four months, registering a level of 50.3, as the mood among financial intermediaries hit a record low.

"There were divergent trends across the service economy, with new work rising at a solid pace at firms operating in renting and business activities, but contracting markedly in the financial intermediation sector," NTC said.

The most optimistic companies were those operating in the hospitality, transport and storage sectors.

The European Commission has also now reported its eurozone “economic sentiment” indicator for March, with the composite number bouncing back a little from the February reading which its lowest level since December 2005. The indicator, which gauges optimism across all economic sectors and is regarded as a good guide to likely future trends, was back up to 102 after falling to 100.1 in February from 101.7 in January. As we can see in some of the counries shown in the chart below, the picture is a mixed one, with Germany for the time being holding reasonably stable, climbing back to 104 from 103.7 in February (France is also holding up fairly well at 105.6, from 105.2 in February), Ireland hovering, Italy continuing its steady downward path, and Spain continuing to head steadily off the map. The March reading in Spain was 83.9 which was down from 87.5 in February. I suppose here it is a case of how low can you go before you hit bottom. Yet awhile I suspect.

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