European Service Industry Contracts at Faster Pace

By Mark Deen and Jana Randow

July 3 (Bloomberg) -- Europe’s service industry contracted at a faster pace in June as rising unemployment damped consumer spending.

A gauge of services activity in the 16-nation euro region fell to 44.7 from a seven-month high of 44.8 in May, London- based Markit Economics said today. The June reading was revised up from an initial estimate of 44.5. The index is based on a survey of purchasing managers by Markit and a reading below 50 indicates contraction.

Companies across Europe have been forced to cut output and eliminate jobs to weather the global slump, prompting consumers to trim spending. Unemployment in the euro region increased to 9.5 percent in May from a revised 9.3 percent in April, the European Union statistics office said yesterday.

“Manufacturers were hit hard by de-stocking, which is now being corrected,” said Pierre-Olivier Beffy, chief economist at Exane BNP Paribas in Paris. “With consumers cutting back, services will be slower to revive.”

Manufacturing shrank at the slowest pace in nine months in June, a separate report showed on July 1, adding to signs that Europe’s economy is starting to recover from the worst recession in six decades. A composite index of manufacturing and services rose to 44.6, marking the fourth month of slowing contraction.

The European Central Bank has cut interest rates to a record low of 1 percent and governments have pumped billions of euros into their economies to revive growth. Still, the ECB expects the euro-area economy to contract 4.6 percent this year and 0.3 percent in 2010.

To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.net; Jana Randow in Frankfurt jrandow@bloomberg.net.