'Worrying slowdown' in EU service sector

(BRUSSELS) - Private sector business activity across the eurozone in February showed a "worrying slowdown" in the all-important services sector, despite manufacturing gains, a closely-watched survey said on Friday.

The purchasing managers' index (PMI) for the 16 countries that share the single currency, compiled by data and research group Markit, remained unchanged on 53.7 points, Markit said.

February, however, marked the seventh month the reading was above the boom-and-bust 50-point line indicating growth and job losses across both sectors was also at its slowest rate since late-2008, it added.

"A surge in growth of manufacturing, driven by rising exports and inventory rebuilding, offset a worrying slowdown in the already meagre rate of expansion seen in the service sector," said Markit chief economist Chris Williamson.

The researchers reported a seventh consecutive monthly rise in manufacturing output, at the fastest rate since April 2007.

Firms reported "improved demand arising from the weak euro," which has fallen to nine-month lows against the dollar under pressure from the Greek debt crisis.

The eurozone manufacturing PMI alone hit 54.1 points, up sharply from 52.4 points in January.

The report cited only a "modest" expansion for the services sector, which benefits less from rising international trade, although expectations for the year ahead were still termed "buoyant" by firms, albeit down slightly from January.

The services business activity index slipped to 52.0 from 52.5 in January.

"In our view, the manufacturing-services disconnection reflects mostly the export-led nature of the eurozone recovery, and possibly still some weather-related effects on services activity," said UniCredit economist Marco Valli.

"However, the fact that manufacturing activity doesn't show signs of peaking yet is fairly reassuring that (moderate) GDP momentum is still on track," he added, tipping 0.9 percent growth in 2010 with interest rates kept low until early 2011.

"While the recovery continued, consistent with Gross Domestic Product rising by approximately 0.4 percent in the first quarter so far, it was unbalanced and concerns persist about its sustainability," Williamson said.

He also warned that inflationary pressures were gathering in manufacturing supply chains, with shortages allowing suppliers to hike prices.