Eurozone services sector growth grinds to a halt

Growth in the eurozone services sector nearly ground to a halt in August amid a rise in new coronavirus cases, according to data released on Thursday.

IHS Markit’s final services sector purchasing managers’ index fell to 50.4 from 54.7 in July, coming in higher than the flash estimate of 50.1 but only just above the 50.0 mark that separates contraction from expansion.

In Italy and Spain, the services PMIs fell into contractionary territory, whereas France and Germany saw services activity continuing to expand. Italy’s services PMI fell to 47.1 from 51.6, while Spain’s PMI printed at 47.7 in August, down from 51.9 in July.

Meanwhile, the composite PMI - which measures activity in the services and manufacturing sectors - fell to 51.9 in August from 54.9 the month before, coming in above the flash estimate of 51.6.

Chris Williamson, chief business economist at IHS Markit, said the easing of the services PMI has fuelled worries the post-lockdown rebound has started to fade amid ongoing social distancing restrictions linked to Covid-19.

"The near-stalling needs to be viewed in the context of the strong expansion seen in July: business growth had surged to a near two-year high as economies opened up further from the severe Covid-19 lockdowns.

"However, the latest reading still sends a disappointing signal that the rebound has lost almost all momentum. The deterioration was often linked to worries of resurgent Covid-19 infection rates, notably among consumer-facing companies and especially in Spain and Italy, where virus containment measures remained particularly strict."

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, said: "We can’t build a narrative around one month’s worth of data, but our rule of thumb is that as long the headlines stay above 50.0, they will be consistent with a continued recovery. On that background, the rebound in services has now been put on notice.

"In terms of the big picture, new orders and output are now rising in the EZ as a whole, but slowly does it. Export demand remains weak, and with output rising quicker than new orders, work backlogs are still falling. This, in turn, prompted firms to reduce employment further. Overall, these details are consistent with a continuing rebound, but the pace is slow, and key areas of weakness are now emerging, mainly in services in Southern Europe."