European service industry enjoys June bounce

LONDON: Europe’s vast service industry expanded faster than initially thought last month, surveys showed yesterday, speeding ahead despite warning signs that Greece might crash out of the euro-zone. Firms across the currency union enjoyed a better June than predicted by a preliminary reading, growing at a four-year record pace, while British firms ramped up activity more than anyone in a Reuters poll had forecast. “While the economic situation is actually progressing and seems to be fairly stable you can’t help thinking that there could be a significant reversal in the months ahead if things start to unravel,” said Stephen Webster at 4CAST.

“People are trying to look through the Greek situation and put a positive spin on things but there are massive uncertainties out there. You have to treat the survey data with a bit of suspicion.”

It has been an eventful week for Greece: it closed its banks, introduced capital controls and became the first developed country to default on an International Monetary Fund loan.

Negotiations with creditors over a reforms-for-cash deal are at a standstill and a referendum on Sunday whose result looks too close to call could determine the country’s future in Europe.

Concerns over the 1.6 billion-euro repayment to the IMF that Athens missed on Tuesday heightened fears Greece would be forced to abandon the euro and kept euro zone manufacturing activity in check last month. But the final composite PMI for June, which combines manufacturing and services activity and is seen as a good measure of growth, came in at 54.2, just above a preliminary 54.1 and well ahead of May’s 53.6. That was its highest reading since May 2011 and the index has now been above the 50 mark that separates growth from contraction for two years.

Suggesting low inflation and the European Central Bank’s 1-trillion-euro bond-buying program were boosting spending among consumers and businesses, the bloc’s dominant service sector ramped up activity at the fastest rate since mid-2011. Retail sales also benefited in May, rising faster than thought. But markets were little moved after Friday’s data as they instead wait for the referendum outcome.

Buoyant Britain Britain’s private-sector services also grew more than expected last month, suggesting the economic recovery picked up going into the second half of the year. The Markit/CIPS UK Services PMI rose by 2 points in June to 58.5, topping all forecasts in a Reuters poll whose median suggested a more modest climb to 57.4. “This leaves the weaker May outturn looking like an outlier, and keeps the PMI running close to its recent average,” said Allan Monks at JPMorgan.

“That average is well above historical norms and sends two messages: firstly that services activity remains resilient, and outweighs disappointments from the manufacturing sector; second, that momentum remained strong right through to the end of Q2.”

Markit said the PMIs point to second quarter economic growth of 0.4 percent in the euro zone and 0.5 percent in Britain. A Reuters poll last month had respective 0.4 and 0.7 percent predictions.

However, the data firm warned Britain’s recovery looks increasingly unbalanced. Growth in British manufacturing declined to its lowest in more than two years last month, according to a survey on Wednesday. Chris Williamson, chief economist at Markit, said the services PMI data made it more likely the Bank of England would want to raise interest rates later this year, However, policymakers might also want to see signs of a sustainable upturn in pay growth before making a move. Economists in a Reuters poll last week said the BoE would wait until early next year before acting, despite also saying wages would rise faster in 2015 than it thinks. — Reuters