LONDON, May 6 - A major survey of euro zone services companies showed on Tuesday that business optimism rose after fighting ended in Iraq, even though activity in the sector continued to shrink. The latest survey of over 2,000 companies, carried out after the fall of Baghdad on April 9, showed business in the services sector shrank in April at the same pace as in March, with the key index remaining below the neutral 50 line at 47.7. Economists had forecast a slight rise to 47.9. However, the expectations index, which measures whether companies think business will be better in 12 months' time, rose markedly in April to 62.6 from 59.6 in March.
"Although the survey provided little evidence to suggest an immediate bounce-back in actual economic growth in the service sector in the weeks following the fall of Baghdad, business confidence...picked up to the strongest for seven months," said NTC Research, which compiles the survey for . An equivalent survey from the United States on Monday showed the service sector there expanded unexpectedly in April, as the end of the Iraq war gave a small shot of confidence. The U.S. Institute for Supply Management's index of non-manufacturing activity rose to 50.7 from 47.9 in March. The average forecast from economists polled by was 48.8. The eurozone survey, which covers firms ranging from airlines and insurers to cafes and cleaning services, showed new business levels fell at the fastest pace in 17 months in April, with the new business index slipping to 46.7 from 47.3.
The service sector accounts for about two thirds of the euro zone economy. Germany, the region's biggest economy, remained the biggest drag on the euro zone indices. GERMANS SHED PESSIMISM
But even German companies shed much of their pessimism, saying they expected business to get better after the rapid resolution of the Iraq conflict. The German expectations index rose close to neutral at 49.7 in April after six months of significantly deeper gloom. "Indeed, some (German) panel firms even suggested that such improvements were already beginning to be seen at their units, indicating that this...had led to the easing in the rate of decline of both activity and new business...in April," NTC said. The Germany activity index rose to 44.6 from 43.3 in March and the new business index rose to 44.7 from 43.6. In Italy, service sector activity fell for the first time in 17 months after customers postponed or cancelled contracts because of geopolitical worries. The main index slipped to 49.8 from 52.2. Even so, Italy's business expectations index rose to 77.0 from 74.1. NTC said Italian "optimism had been buoyed by hopes of improved economic conditions in the Eurozone and the United States, but also by the prospect of increased demand for services following the end of full-scale hostilities in Iraq."
JOB CUTS AND DISCOUNTS
Of the major economies, only France reported some sluggish service sector growth. The French activity index rose to 51.1 from 50.9. However, French panellists said clients were still deferring big spending decisions because of global economic uncertainties and the hotel and restaurants sector was hit particularly hard by a drop in new business. For the ninth month running, the euro zone services sector cut more jobs than it created and average prices charged for services fell as companies offered discounts to win sales. Companies' input costs continued to rise but at a slower pace, partly because import prices are being held down by the euro currency's strength against the dollar and sterling. The survey covers Germany, France, Italy, Spain and Ireland, accounting for about 83 percent of private sector services output in the euro zone.//