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Thursday, June 5, 2008

Germany Services PMI May 2008

Euro zone services activity slipped close to contraction in May, in line with expectations, as growth took a sharp hit in France, while inflationary pressures mounted, a key survey showed on Wednesday. The RBS/NTC Eurozone Services Purchasing Managers index fell to 50.6 in May, the same level as the flash estimate and as forecast by economists, from 52.0 in April.

The rate of expansion in Germany's services sector slowed in May, hit by a deterioration in business expectations and firms' worries about rising input costs.

NTC Research's business activity index for German services firms fell to 53.8 from 54.9 in April, holding above the 50 mark separating expansion from contraction for the fourth month running but weighed down by concern about the business outlook.
The figure was marginally above the flash estimate of 53.7.

"May's PMI data point to further solid growth of activity in the German service economy, notwithstanding the ongoing underperformance of the Financial Intermediation sector," said Tim Moore, economist at NTC Economics, which compiles the data. However, the overall business outlook deteriorated in May amid weaker gains in new work and the steepest fall in backlogs for five years."

The business expectations component fell to 48.0 from 51.2 in April, registering the most pessimistic reading since November 2007. This deterioration partly reflected the sharpest decline in work in hand in almost five years, NTC said.

The deterioration in the services sector growth outlook is in harmony with other recent economic indicators from Germany which have suggested that Europe's largest economy is now slowing significantly after a reasonably dynamic first quarter.

Retail sales fell sharply for a second straight month in April and unemployment rose in May for the first time in more than two years. The fall in retail sales raised questions about Germany's ability to cope with soaring fuel and food prices. High fuel and food prices sparked an acceleration in German inflation in May to 3.0 percent from 2.4 percent in April.

The services PMI prices charged component edged up to 53.5 from 53.3 in April. Another on input prices registered 61.7, slowing from 62.7 but holding well above the 50 level separating expansion from contraction.

"Average input cost inflation remained at an elevated level in May," NTC said. "Anecdotal evidence overwhelmingly suggested that sharply rising fuel prices, as well as robust wage inflation, had driven up costs at (panel members') units in May," it added.

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