UPDATE: Euro-Zone Oct Services PMI Bouyed By France, Italy

(Adds further economist comment, detail)

   By Ilona Billington 
   Of Dow Jones Newswires 

LONDON (Dow Jones)--The euro zone's services sector grew at a faster pace than expected in October, buoyed by a continued surge in growth in France and a surprise return to growth in Italy, data showed Monday.

According to Markit, the final Purchasing Managers Index for the euro zone's services sector rose to 52.6 in October from 50.9 in September.

The strength of the rise came as a surprise as economists surveyed by Dow Jones Newswires last week had expected the PMI to increase to 52.3, which was in line with the flash estimate.

A reading above 50 indicates that activity is growing while a reading below 50.0 indicates that activity is declining.

"The return to growth of service sector activity is particularly encouraging as it points to an increasingly broad-based, and therefore hopefully more sustainable, upturn in the euro area," said Chris Williamson, chief economist at Markit.

The data echo the results of the manufacturing survey released earlier this week and show France as the leading light of the economic recovery across the euro zone at the moment.

"The main message from the euro-zone PMI surveys this month is that growth conditions continue to improve with the euro-zone composite PMI consistent with growth of about 0.4% on the quarter going into the fourth quarter," said Dominic Bryant, euro-zone economist for BNP Paribas. He adds that there is a possibility that gross domestic product growth could be even stronger in the third and fourth quarters than the surveys suggest.

The details of the surveys show new business in the euro zone grew again in October, rising to an almost two-year high.

"France easily led the growth of new business among the big-four euro nations," Markit said.

In Spain new orders fell sharply in October as the sub-sector here continued to contract.

Markit also reported that payrolls across the euro area continued to fall in October although at a slower pace than in September. In Germany employment remained stable but fell in France and Italy.

"Higher levels of activity and new business contributed to a slower rate of job shedding in the German private sector in October," Markit said. "Workforce reductions largely reflected restructuring in the manufacturing sector, whereas employment levels stabilized in the service economy."

Markit reported the individual country service sector performances which showed France's services PMI rose sharply to 57.7 in October from 53.2 a month earlier. That was just short of economists forecast for 57.8, which was in line with the preliminary estimate.

Italy's services sector posted a massive rise to 52.2 in October from September's 48.5. The rise was much stronger than expected as economists surveyed by Dow Jones Newswires had forecast a rise to 49.1.

Germany's service sector PMI, meanwhile, fell again in October and by more than expected, although it remained above the key 50 level at 50.7 from 52.1 in September. Economists had forecast it would fall to 50.9 which was in line with the flash estimate.

The widespread strength pushed the composite euro-zone PMI index, which reports the average output of both the manufacturing and services sectors, to 53.0 in October. That was the highest level since May last year, and compared with 51.1 in September.

Economists surveyed by Dow Jones Newswires had forecast the composite index would rise to 53.0, the same number published in the flash estimate of this measure.

"Surging growth in France helped propel the euro zone recovery in October, with the region expanding at the fastest pace since December 2007," Williamson said.

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

-By Ilona Billington, Dow Jones Newswires; 44 20 7842 9452; ilona.billington@dowjones.com

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(END) Dow Jones Newswires

November 04, 2009 05:09 ET (10:09 GMT)


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