Euro Zone Services Growth Hits Eight-Month High in September
The euro zone services sector saw slightly accelerated growth in September, reaching its highest point in eight months. However, the overall expansion remained modest, with hiring stalling despite a slight improvement in customer demand, according to a recent survey.
The HCOB Eurozone Services PMI Business Activity Index rose to 51.3 in September from 50.5 in August. Since a reading above 50.0 indicates growth, this marks the fourth consecutive month of expansion.
Key Trends and Concerns
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Widespread Recovery: The pick-up in activity was seen across most of the bloc, including moderate growth in Germany, Italy, and Spain. In contrast, France’s service sector continued to underperform due to ongoing political uncertainty.
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Weak Demand: While overall demand for services increased at the fastest pace since August of the previous year, the improvement was still marginal. Notably, foreign demand remained weak, with new export orders declining for the 28th month in a row.
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Hiring Stalls: In a significant shift, service companies slightly reduced their workforces in September, ending a continuous hiring streak that began in March. This occurred as firms worked through existing orders, causing backlogs to fall at the fastest rate in three months.
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Price Easing: Price pressures showed signs of relief as the rates of increase for both input costs and selling prices slowed compared to August.
Outlook and Economic Picture
Despite limited new business growth, service providers became more optimistic about their future activity, with business confidence hitting an 11-month high. The broader HCOB Eurozone Composite PMI (which includes manufacturing) also rose to 51.2, suggesting the euro zone economy is gaining some momentum. Based on this PMI data, Hamburg Commercial Bank estimates the euro zone economy grew by 0.4% last quarter.
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