Growth in the euro zone services sector fell to its slowest rate in six months in March as the Madrid train bombings hit new business and dented confidence, a survey of over 2,000 companies showed on Monday. The Eurozone Business Activity Index, which was compiled after the March 11 attacks, dropped to 54.4 -- its lowest since last September -- from 56.2 in February. "Overall there was probably an impact from the Madrid bomb attacks," said Elwin de Groot at Fortis Bank in Amsterdam. He added: "The key message of this report is that growth is continuing, albeit at a somewhat slower pace than in the months before." Economists had expected a smaller fall to 56.0, but the index still kept well above the key 50 no-change line that divides growth from contraction for a ninth consecutive month.
"The decline in March reflects an already existent downward trend in growth of new business which was exacerbated by the bombings in Madrid," said Chris Williamson, chief economist at NTC Research, which compiles the survey for . The survey collected data from service firms such as airlines, banks and retailers in Germany, France, Ireland, Italy and Spain, which together account for 83 percent of private sector services output in the 12-nation euro zone. Services activity expanded more slowly in all the four largest economies -- Germany, France, Italy and Spain -- with the biggest slowdown in Spain, reflecting the impact of the Madrid bombings and disruption from national elections. A companion survey of euro zone manufacturers last week showed firms put in their best performance in over three years in March, although growth remained modest.
LESS OPTIMISM
A survey on the U.S. service sector, published by the Institute for Supply Management, is due for release at 1400 GMT on Monday. Economists estimate it will show a rise to 61.5 in March from 60.8 in February. New business across the euro zone expanded for an eighth month in March, but the rate of increase slipped for the second month running, with Spain again showing the weakest monthly improvement. The new business index came in at 53.6, its lowest reading since last September, after 55.5 in February and 57.0 in January. The survey showed firms becoming less confident about business conditions in 12 months' time, with Spanish companies particularly downbeat. The business expectations index fell to 66.1, its lowest since last August, from 69.8 in February. "It seems likely that the downturn in confidence in March was attributable to not just the bombings, but also growing concerns about the sustainability and strength of the economic recovery in Europe," said Williamson. Job prospects, on the other hand, are looking a little brighter since the contraction in employment slowed, as reflected in the employment index rising to 49.3 in March from 48.2 in February. "(It's) a welcome indication that firms are increasingly coming back to the job market," said Williamson. But he added: "Employment is a lagging indicator and if activity...continues to show an easing in the rate of increase, we might still fail to see any proper growth of employment in coming months." The euro zone outstanding business index fell to 50.7 from 52.4, showing backlogs of work at their lowest level since October 2003. Inflationary pressures remained largely subdued in March and the input prices index dipped to 54.3 to 54.7. "Input cost pressures are well below the survey average and at the same time new business and demand for services are not rising at a rate which is allowing services to increase their prices charged," said Williamson. The index for prices charged eased to 48.1 in March from 48.7.///