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Euro Zone November Services "Flash" PMI Sinks

Growth in the euro zone's dominant services sector fell more than expected to a 27-month low in November as new orders slipped but manufacturing industry staged an unanticipated rebound, a key survey showed on Friday.

The RBS/NTC Flash Eurozone Services Purchasing Managers' Index slipped to 53.7 -- well below the 55.2 forecast by economists and its lowest since August 2005 -- from 55.8 in October.

This took the services PMI below the 54.2 recorded in September, when financial market turmoil stemming from a credit crunch hurt business and orders, but it was still above the 50.0 threshold separating growth from contraction.

The survey will be seen pointing to a likely sharp economic slowdown in the 13-nation euro zone. But the European Central Bank is unlikely to ride to the rescue by cutting interest rates from their present 4 percent given mounting inflation pressures.

Indeed, the services survey showed input cost inflation accelerating to its highest in just over seven years, hitting 63.0 in November after 60.6 in October, as surging oil prices and higher food costs took their toll.

Manufacturing in the euro zone showed more promise this month. The RBS/NTC Flash Eurozone Manufacturing Purchasing Managers' Index bounced back to 52.6 from October's 51.5, which had been its lowest since August 2005.

This was the first rise since June, as firms took on more new orders, but inflation also picked up.

But Jacques Cailloux, chief euro area economist at RBS, which sponsors the survey, said the overall PMI data for November confirmed the euro area was "transitioning into a phase of below trend growth."

The numbers, he added, challenged the ECB's view that the euro zone would continue to show growth in line with potential of around 2 percent.

The sharp fall in the services sector knocked the composite index, which fell to 53.8 from 54.7 in October, its lowest level since August 2005.

Incoming new business for services fell steeply to a two-year low of 54.1 from 55.6 in October.

The outlook for the services sector does not look promising either, with the business expectations index sinking two points to 58.3, its lowest since November 2002. Employment growth also fell to 54.4 from 55.6, its lowest since April this year.

Factory Rebound

The contrasting pick-up in the manufacturing sector in November followed four months of slippage.

New orders at factories jumped back to 52.4 from 50.7 in October, which had marked its lowest since May 2005. Likewise new export orders picked up to 52.3 from 51.4.

But this might not be the start of an upwards trend.

"I would be surprised if this is the start of a rebound in the manufacturing sector and it could trend lower in coming months," said Cailloux.

However, he added that it did show some resilience from the sector in the face of the euro rising to record highs against the dollar, which could be expected to damage prospects for exports.

Employment recovered to 52.1 from 51.1 in October as some business confidence returned to the sector.

Inflationary pressures also quickened this month, blamed in large part on oil prices, which hover close to $100 a barrel.

The input prices index rose to 61.8 from 59.0, its highest since August.

But only a mild pick-up was seen for output prices, which rose to 53.4 from 53.2, suggesting firms were struggling to pass on the jump in prices.

Data for the flash PMIs were collected between Nov 12-22.

Contact Europe: Economy

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