A recovery from a severe recession in the euro zone's services sector stalled in June as consumers remained nervous, but factories fared better as they ran down stocks, key surveys showed on Tuesday.
The surveys suggested that while the worst of a dark recession had passed in the euro zone's services-led economy, a recovery would take a long time to bed down.
Markit's Eurozone Flash Services Purchasing Managers Index (PMI) of around 2,000 companies slipped to 44.5 in June from 44.8 in May. That was well below the 50.0 mark that divides growth from contraction, and also fell short of economists' expectations for a rise to 45.8.
Markit said the data still pointed to the economy contracting between 0.5 and 0.6 percent in the second quarter, and that growth may not be seen until the last three months of the year.
Financial markets shrugged off the data.
"The services PMI makes you wonder about one, the path to recovery and two, the timing of recovery," said Kenneth Broux at Lloyds. "Recovery isn't likely until late 2009 at the earliest."
The deterioration in services contrasted with encouraging signs for the region's factories, albeit from low levels.
Markit's Flash Manufacturing PMI rose to 42.4 from 40.7 in May, its highest level since last September and just up on the 42.3 predicted by economists.
The small fall in the services PMI was outweighed by the large jump in the manufacturing index, taking the Composite index of the two up to 44.4 from 44.0, its highest since September.
RISKS
The data will likely encourage the European Central Bank to leave rates on hold at a record low of 1.0 percent for some time to come to support a fragile economy.
ECB President Jean-Claude Trichet warned on Monday that there were still risks of further financial turbulence and warned governments that there was now no room to take on more debt to battle the crisis.
Earlier surveys showed contrasting views for the euro zone's two major economies. While France's composite PMI jumped to its highest level since June last year at 47.7 from 46.6, Germany's combined PMI fell to 43.4 from 44.0 as its services economy contracted much faster than expected.
Markit said the data raised the possibility the German economy could contract in each quarter this year.
The euro zone data for the services sector as a whole did include some encouraging signs, however.
The incoming new business index rose to 43.3 — its highest since September — while the business expectations index for the year ahead soared to its best level since July 2007.
That brightening outlook may have contributed to a rise in employment indexes. The Composite employment index rose to 42.3 from 40.7, indicating a less severe pace of net layoffs.
CAN CONSUMERS MATCH BUSINESS?
In manufacturing, the main index at 42.4 was well above the low of 33.9 hit in December and came as the contraction in new orders eased considerably, as did factory output.
Factories are also running down old stocks at a rapid rate. The orders to inventory ratio, a key gauge of pressure on companies to raise production, jumped again in June to 1.08 from 1.04 in May, its highest level since November 2007. That suggested that companies would have to pick up production going forward. But economists questioned whether consumers would start spending again in order to drive the recovery on.
"The services sector is facing more headwinds from the increase in unemployment and therefore weaker demand from households," said Juergen Michels at Citi.
Inflation pressures also picked up a little in June across both the services and manufacturing sectors, but still remained at very low levels. Official inflation in the euro zone fell to zero in May.
