Eurozone Services Sector Growth Improves Slightly in February
Business activity in the eurozone services sector increased at a slightly faster pace in February, supported by improving demand. However, overall growth remained modest, and companies showed only limited hiring activity, according to a survey released on Wednesday.
Eurozone Services PMI Shows Continued Expansion
The HCOB Eurozone Services Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 51.9 in February, compared with 51.6 in January. The final reading was also slightly above the preliminary estimate of 51.8.
A PMI figure above 50 indicates expansion in economic activity, suggesting the services sector continues to grow across the eurozone.
According to Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, the sector’s performance in February was not particularly strong, but the data showed some improvement compared with the previous month.
Demand and New Business Continue to Grow
New business orders increased at a modestly faster pace, extending a growth trend that began in August last year.
At the same time, service companies continued to reduce their backlog of work for the fourth consecutive month, although the rate at which backlogs declined slowed slightly.
Employment Growth Remains Weak
Despite the improvement in business activity, employment growth in the services sector remained limited. Hiring increased only slightly and slowed to a five-month low, reflecting weaker business confidence among companies.
Cost Pressures Rise Sharply
Companies also faced stronger cost pressures in February. Input price inflation remained elevated and matched January’s 11-month high.
The increase in costs was the steepest in nearly three years, with firms citing higher wages, energy prices, and transport expenses as the main drivers.
De la Rubia noted that these persistent cost pressures could influence monetary policy decisions by the European Central Bank (ECB).
He suggested that the latest data provides another reason why the ECB may avoid cutting interest rates in the near term.
ECB Interest Rate Outlook
A Reuters survey conducted last month indicated that the ECB is expected to keep its deposit rate at 2.00% at least until the end of the year. This would extend the longest period of stable borrowing costs since the eurozone moved away from its negative interest rate era.
Germany Leads Services Growth in the Eurozone
Among the eurozone’s largest economies, Germany recorded the strongest growth in services activity.
Meanwhile, the pace of expansion slowed in Italy and Spain, while France’s services sector continued to contract, although the rate of decline eased compared with previous months.
Eurozone Composite PMI Reaches Three-Month High
The improvement in services activity helped push the eurozone composite PMI, which combines both manufacturing and services data, to a three-month high of 51.9.
This marks the 14th consecutive month of economic expansion across the eurozone private sector.
