Euro Zone Slowdown Gathers Pace

Euro zone economies are slowing, and at very different speeds, but inflation remains consistently high, according to data that makes the European Central Bank's job of setting interest rates even tougher., Reuters 4/3/2008 6:48:56 AM

Key private sector surveys of its biggest economies this week point to weakening growth in the euro zone as a whole, with France and Germany still growing modestly, Italy stagnating and Spain in freefall.

RBS/NTC said their euro zone services index fell to 51.6 in March from 52.3 in February and was revised down slightly from the flash estimate of 51.7, where 50.0 is the line that divides expansion and contraction. The composite index that combines manufacturing and services also slipped to 51.8.

At the same time, the surveys conducted by NTC Economics underscore evidence from official government data that show inflation pressures, for the moment at least, are intensifying because of higher food and energy prices around the world.

That means interest rates are set to remain at 4.0 percent for several more months yet even as the U.S. Federal Reserve has slashed rates by 3.0 percentage points since September, sending the single currency to record highs against the dollar.

While there are signs that a strong euro is hitting Europe's export base, data also showed on Thursday that euro zone retail sales unexpectedly fell in February, a worrying sign that already modest consumer spending may be faltering.

Unlike the Fed, ECB policymakers in the meantime appear fixed on a common threat -- inflation.

The euro zone services input price index soared to 63.2 from February's 60.6 because of soaring energy costs while the prices charged index climbed nearly two points to 53.9, the highest since June.

The index of German services activity fell to 51.8, Italy's recovered slightly but remained negative with business activity at 48.8 compared with the previous month's 47.2.

The French index slipped to 57.3 from February's 58.2 and Spanish business activity contracted at the fastest pace since the survey started in 1999, dropping to 40.9 from February's 46.1. That followed an equally dismal manufacturing survey.

Data also released on Thursday showed Britain's service sector slowed more than expected in March as confidence fell and firms' margins were squeezed by a record rise in input prices.






Euro Zone Slowdown Gathers Pace