LONDON, Oct 3 - Growth in the euro zone's dominant service sector shifted up a gear last month to its fastest pace since April 2002, as confidence soared and demand rose, a survey of 2,000 companies showed on Friday. The euro zone business activity index rose further above the 50 line that divides growth from shrinkage to 53.6 in September from 52.0 in August, the third month of expansion and above a 52.5 consensus forecast. "(It) looks very good, quite a bit above expectations," said Mark Wall at Deutsche Bank in London. "It was (good) in all the big countries... We expected a pick-up in growth in the third quarter and that seems to be what has happened." The services sector, spanning businesses from airlines to restaurants and cleaning services, accounts for about two thirds of the 12-nation euro zone economy. France saw the strongest growth in activity, but the about-turn in Germany's performance over the last two months was noted by NTC Research, which compiles the survey.
In Germany, "there was also evidence...to suggest that investment spending was on the rise once again, as some modest degree of client confidence returned", NTC said. The euro zone new business index, at 53.6 in September, showed demand grew at the fastest pace in nearly two and a half years. In August the index stood at 51.8. Growing confidence in the future of the global economic recovery pushed the business expectations index up about four points to 69.8 in September. Confidence leapt more than six points in Italy on hopes that the brighter outlook would lead to a surge in new business. In France companies also mentioned new investment plans. "Confidence was strongest in the Post & Telecommunications and Financial Intermediation sectors (in France)," said NTC.
JOBS CHEER
A companion survey of manufacturers earlier this week showed that sector grew for only the second time in a year. The Eurozone Purchasing Managers' Index rose to 50.1 in September from 49.1. The surveys should reinforce expectations that the European Central Bank has finished cutting interest rates and will leave them at 2.0 percent until next year unless euro strength dampens growth and inflation falls well below the two percent target. A comparable survey of the U.S. service sector, published by the Institute for Supply Management, is due for release later on Friday at 1400 GMT. The consensus forecast is for the index to slip to 62.5 in September from 65.1. Italy's business activity index was up at 53.1 in September from 52.4 in August and the German index rose to 52.4 from 51.8. France's index climbed to 55.6 from 52.0 in August and the employment index bounced back to 50.2 from August's survey low of 47.2 as companies hired staff to deal with higher workloads. Employment also rose in Italy, but in Germany the continuing need to cut costs and improve productivity prompted companies to shed jobs for the 18th month running. The euro zone employment index up at 47.7 in September from 46.2 showed the overall pace of job losses slowed. Companies had to cut the prices they charged for their services, but the deep discounts they had to offer in previous months were not necessary in September. The prices charged index was up at 48.5 in September from 47.8 and the input price index slipped to 53.9 from 54.5. "Some oil-related increases in fuel prices were noted, helping to drive up overall growth of costs...but cost inflation eased in both Germany and France, in part due to slower growth of wages and salaries," said NTC.//