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GLOBAL ECONOMY-Service sector slowdown threatens growth
September 5, 2011 / 10:16 AM / 6 years ago

GLOBAL ECONOMY-Service sector slowdown threatens growth

* 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.


China’s fledgling services sector, which accounts for less than 45 percent of gross domestic product, grew in August at the lowest pace on record, reinforcing signs that the world’s second-biggest economy is losing steam but there is little possibility of a hard landing.

But China’s HSBC PMI reading of 50.6 still implied annual expansion of 8-9 percent for the services sectors, the bank said in a note to clients.

“China’s services sector is likely to see moderation, not meltdown, in the coming months,” said Qu Hongbin, China economist at HSBC.

India’s services sector grew at its slowest pace in more than two years in August, throttled by feeble expansion in new business as a faltering global economy and tight domestic monetary conditions weighed.


Euro zone leaders have been battling to prevent a debt crisis spreading from periphery members to some of the bloc’s bigger economies, while the U.S. has been fighting its own demons of sluggish growth and impending tough austerity measures, both of which have hit global markets.

Due at 1400 GMT, the PMI for United States’ service sector, which accounts for around three-quarters of the world’s largest economy, likely fell to 51.1 last month from July’s 52.7.

Friday’s data showed U.S. employment growth ground to a halt in August, piling pressure on both President Barack Obama and the Federal Reserve to provide more stimulus for the economy.

Obama will lay out a new jobs plan in a speech to the nation on Thursday, and White House advisers said the jobs data underscored a need for action.

They could strengthen the hand of officials at the Federal Reserve who wanted to do more to help the sputtering economy in August.

The central bank, which meets on Sept. 20-21, cut overnight interest rates to near zero in December 2008 and has bought $2.3 trillion in securities to inject cash into the economy.

In contrast, the European Central Bank has raised its key lending rate twice since April, taking the refi rate to 1.5 percent. The worsening growth and debt concerns will prompt the ECB to leave rates on hold until the final quarter of 2012, a Reuters poll shows.

Similarly the Bank of England, which has held rates at a record low of 0.5 percent for over two years, is not seen budging on rates until the dying months of 2012. (Additional reporting by Aileen Wang and Kevin Yao in Beijing, Olesya Dmitracova in London and Sumanta Dey in Bangalore)

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