The euro zone's dominant services sector expanded at its slowest pace in over a year in September, a survey showed on Tuesday, adding to signs that economic growth in the 12-nation bloc may be slowing. The Eurozone Business Activity Index fell to 53.3 in September from 54.5 the previous month, hitting its lowest level since August 2003 and coming in below the consensus forecast of 54.4. "There appears to be increasing evidence that euro zone growth has peaked," said Chris Williamson, chief economist at NTC Research which compiles the survey of 2,000 companies for . "The downturn is attributable primarily to an easing of global business conditions (and) at the same time consumer demand in the euro area remains lacklustre." The survey features data from businesses such as airlines, banks and restaurants in Germany, France, Ireland, Italy and Spain, which together account for around 83 percent of private sector output in the euro zone. "Combined with the manufacturing PMI that we had at the end of last week, it suggests that the euro zone economy is slowing already," said Robert Prior-Wandesforde at HSBC in London. The companion manufacturing index, published on Friday, fell to a seven-month low of 53.1, hit by the global economic slowdown.< br> One bright spot in the services survey was the employment index, which rose to 50.6, its highest level since April 2002 and above the key 50 watermark between growth and contraction for the second month in a row. But Williamson said this was unlikely to be the beginning of a hiring spree in the service sector, given high raw material costs and a moderation of demand for services. "There is evidence to suggest that backlogs of work are correlated with unemployment figures in the euro area and we saw the first fall in outstanding business in 11 months," he said. "(This) suggests that operating capacity at the moment is adequate to serve demand and we are unlikely to see strong gains in employment in the coming months."
PRICE CUTS
The outstanding business index slipped to 49.1, its lowest level in a year and down from August's 50.0, as a slowdown in new business growth enabled companies to tackle their backlogs. The euro zone new business index fell to a 13-month low of 52.4. Softer new business growth in Germany and France helped to push their national business activity indices to 13-month lows of 52.1 and 53.1 respectively. Growth was a little stronger in France, where the domestic consumer has been more active than in Germany. The situation was better in the euro zone's number three economy, Italy, where service firms compensated for softening demand by offering hefty discounts to lure more customers. There the headline index edged just 0.4 of a point lower, to 56.1, and new business growth picked up on the month. But the Italian prices charged index slumped to a 5-year low of 46.4. "The survey certainly suggests that buoyancy of the business activity index in Italy is being driven by discounting to a greater extent than in other countries. So that is not something that is a long-term sustainable trend," said Williamson. For the euro zone as a whole, companies cut the price of their services, sending the prices charged index into contraction territory, at 49.0. The input prices index also fell, but at 58.3 it showed costs still rising strongly. The resulting pressure on margins dented confidence in the sector. The forward-looking business expectations index slipped to 63.6, its lowest level in 15 months, from August's 64.6. The index has fallen sharply from a two-year high of 71.5 in January, but still remains well above the 50 mark, pointing to further services growth over the coming year. "It is too early to say if this is going to be an easing in the rate of growth or an actual downturn in economic growth," said NTC's Williamson.///