BERLIN, Feb 4 - Germany's service industry, which accounts for about two thirds of the economy, expanded at a faster pace in January, with firms reporting an increase in new business for a sixth month, a poll showed on Wednesday. The Business Activity Index, based on a survey of about 500 service companies, rose to a seasonally adjusted 55.2 from 54.6 in December but was still just below November's three-year high. The index remained above the 50 mark separating expansion from contraction for a sixth consecutive month. A sub index that measures new business also signalled a sixth month of growth, rising to 55.3 from 54.9 the previous month. "In addition to the rising volume of new contracts being secured by firms in January, anecdotal evidence also highlighted increased enquiries at their units, and some panellists reported having to deal with rising backlogs," said Chris Williamson, head of economics at NTC, which compiles the data.
"Reports from panellists pointed to increased spending amongst clients, and there was a suggestion that this recovery in expenditure was reflective of the more widespread economic recovery being experienced across global markets," he added. Europe's biggest economy is expected to grow by at least 1.5 percent this year, after a slight contraction in 2003. German companies have benefited in recent months from strengthening foreign demand as global recovery accelerates, though the weakness of domestic spending remains a concern. An equivalent survey of manufacturers published early this week was also upbeat for January, with the pace of growth holding at a three-year high.
German software consultancy SAP Systems Integrations AG , which helps companies install big software systems, last week gave an optimistic outlook after quarterly sales hit a record high. Deutsche Telekom said last Tuesday it added 1.02 million subscribers in the fourth quarter to its main earnings growth driver, T-Mobile USA.
PRICE COMPETITION
However, the recent appreciation of the euro against the U.S. dollar has hurt sentiment at some firms and forced many to cut prices to remain competitive, the survey of services firms suggested. An index measuring business expectations dropped to 62.4 in January, from 66.9. "Not only did the exchange rate effect of the strong euro serve to make German services less competitive outside the euro zone, but domestic firms also faced intensified price competition from cheaper dollar-denominated services," Williamson said. A new truck toll introduced by the government also eroded optimism in January, he added. Meanwhile, there was little cheer for Germany's four million unemployed in the survey. January's employment index signalled contraction for the 22nd consecutive month, falling to 45.1, from 46.3 in December. "Panel firms reported that staff cuts had been made in spite of the latest strong growth of new business, and there were further indications that scope for efficiency gains existed," Williamson said.//