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Eurozone service sector shrinks, again

London, UK (05/07/2012)

LONDON (Management Today) The latest PMI data piles on more euro woe - services and manufacturing output shrank for the fifth month in a row in June.


The update from Markit suggests the ongoing euro crisis and low consumer confidence across the region is still affecting market conditions, leaving businesses struggling to sell products and find new customers.

The eurozone composite PMI (the closely-watched measure of activity across services, manufacturing and construction), was 46.4 last month. That signals a contraction (a reading of 50 and above means expansion), although it was a slight improvement on May’s 46.0 reading.

Even Germany, the eurozone’s most robust economy, felt the strain last month. The country’s service sector slipped slightly, coming in at 49.9, down on May's 51.8. It was far worse in Spain, where the service sector contracted for the twelfth month in a row as the country battles a deep recession. Nevertheless the service sector, which makes up around 70% of the country’s economy, nudged up slightly to 43.4 last month from 41.8 in May.

The weak economic data suggests the eurozone could be moving closer to recession. Currently six countries in the territory, including Spain, Greece and Italy, are in recession, having had at least two consecutive quarters of economic contraction. But strong growth in Germany has so far prevented the eurozone as a whole from falling into recession.

It was a mixed picture in the UK. Service growth expanded at 51.3; but it was a fall on May’s 53.3 reading and is now at an eight-month low. And figures on Monday showed Britain’s manufacturing sector contracted for the second month in a row as new orders continued to fall. The slowdown suggests the UK could still be in recession for the third consecutive quarter.

Meanwhile Greece is preparing for a visit from officials who will check the country is meeting its austerity measures. The ‘Troika’ - the European Commission, International Monetary Fund and European Central Bank – will check that Greece’s €173bn bailout programme, which was agreed in March, is underway. The suspicion is that Greece is behind schedule, although Christine Lagarde said in an interview yesterday that she is not considering renegotiating the terms of Greece's bailout agreement.And later today focus will shift to Rome, where Italian prime minister Mario Monti and German chancellor Angela Merkel will meet for the first time since last week’s summit. With Bob Diamond making his Treasury Select Committee appearance too, economy watchers will have a busy afternoon.

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