Euro-Zone Services Industry Slows

Activity in the euro zone's dominant services sector slowed slightly more than expected in March, as weakness in Germany dragged the sector down.

The data showing slowing economic activity was accompanied by indications that services providers were raising prices _ a potentially worrying sign for the European Central Bank in its fight against inflation.

The Purchasing Managers Index for the euro-zone services sector dropped to 51.6 in March from a revised 52.3 a month earlier, NTC Economics said Thursday.

The preliminary reading for February was 51.7.

A reading above 50 signals an expansion in activity in the sector, while a figure below 50 signals a contraction. The data show that the region's services sector _ which makes up around 70 percent of the economy _ expanded in March, but at a slower pace.

The reading is unlikely to affect the outlook of the European Central Bank, which remains fixed on the region's high rate of inflation, which was 3.5 percent in March, well ahead of its 2 percent target ceiling.

The ECB's concerns will be heightened by the survey of purchasing managers, which found that service providers hiked their prices at the fastest rate since April last year as the cost of their inputs, especially food and energy, surged at the fastest rate since July 2006.

"The ECB will be unhappy to see that slowing services activity in March did not prevent price pressures picking up," said Howard Archer, an economist at Global Insight.

A country breakdown showed that services sector activity in Germany fell unexpectedly in March, perhaps weighed down by the souring mood in the financial sector which continued to experience a period of turmoil and tight credit conditions during the month.

The German services PMI fell to 51.8 in March from 52.2 a month earlier. Activity also slowed in France, where the PMI fell to 57.3 from 58.2.

However those economies, the two largest in the currency bloc, continued to outperform those of smaller neighbors. PMI data from Italy, Spain and Ireland all showed that services sector activity in those countries continued to contract in March.

The Spanish measure fell to its lowest ever level, dropping to 40.9 from 46.1 in February, while the Irish PMI fell to 48.1 in March from 48.3, its lowest level since May 2003. In Italy, the index continued to show a contraction, despite the PMI picking up to 48.8 from 47.2.

"Both Italy and Spain are experiencing collapsing demand," said Jacques Cailloux, an economist at the Royal Bank of Scotland Group, which sponsors the surveys of purchasing managers.

The euro-zone services PMI is based on data from Germany, France, Italy, Spain, Ireland, Austria, Greece and the Netherlands, which account for around 92 percent of the bloc's activity.