Service sector slowdown threatens growth

Tuesday, 6 September 2011 00:00 -     - {{hitsCtrl.values.hits}}

  • Euro zone service sector grows at weakest pace in 2 yrs
  • UK services PMI suffers biggest drop in a decade
  • Asian PMIs show slowing growth

By Jonathan Cable

LONDON, Sept 5 (Reuters) - Global growth in services came to a virtual standstill last month as new business all but dried up, adding to fears that the world economy is facing another recession.

Weak purchasing managers indexes (PMIs) from the euro zone, China, India and Britain echoed surveys last week that showed world factory output slowed in August. Data due later on Tuesday are also expected to show U.S. services growth has slowed substantially.

That all chimed with comments on Saturday from World Bank President Robert Zoellick, who said the global economy is stepping into a “new danger zone” as growth slows and investor confidence weakens.

“At near stall-speed growth rates, the US and Europe are clearly vulnerable. Outright recession, however, needs a trigger which, in our opinion, will remain absent,” said Michala Marcussen, head of global economics at French bank Societe Generale.

U.S. jobs numbers on Friday also came in worse than expected, adding to worries about the world’s largest economy, and stock markets and the euro -- battered by its government debt crisis -- continued to fall on Monday.

Growth in the euro zone’s dominant service sector eased for the fifth consecutive month in August, expanding at its weakest pace in two years, as new orders in the private sector shrank for the first time since August 2009.

Worryingly for policymakers, a persistent downturn among smaller members of the 17-nation currency bloc is now spreading to core economies like Germany that have long supported the region’s fragile recovery, the data showed.

Markit’s Eurozone Services Purchasing Managers’ Index (PMI) nudged down to 51.5 last month from 51.6 in July, its lowest reading since September 2009 but in line with an earlier flash reading.

The index has been above the 50 mark that divides growth from contraction for two years but Markit warned that unless business conditions improve, the euro zone economy risks contracting in the fourth quarter.

Other data last week confirmed German GDP grew just 0.1 percent in the second quarter, far slower than 1.3 percent in the first three months of the year.

Activity in Britain’s dominant services sector also slowed at the fastest pace in a more than a decade in August, and firms’ confidence in future business weakened to a one-year low.