ECB warns of potential further slowdown in Euro zone’s services sector

Euro zone’s services: Eurozone services activity may slow further in coming quarters due to rising interest rates, but the impact on the sector may be milder than on manufacturing, a European Central Bank study concluded on Tuesday. I attached it.

The currency bloc’s manufacturing sector has been in recession for most of 2023, due in part to the ECB’s rapid rate hikes as part of its efforts to rein in runaway inflation. However, demand for services remained relatively strong, boosting overall growth but confounding some.

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However, the ECB concluded that this situation could change, as services activity tends to reflect the situation in manufacturing with a two-quarter lag.

Euro zone’s services “Trends in manufacturing include information related to short-term developments in services and, by extension, to the rest of the economy,” the ECB said in an article in its economic journal. “While manufacturing appears to be leading in the services sector, no clear leadership relationship can be established in other directions.

Euro zone's services

Euro zone’s services ” The ECB lifted interest rates from deep negative territory to a record 4% in just over a year as an unexpected spike in inflation weighed on the economy and raised the cost of everything from energy to food to services.

Even though the services sector appeared resilient, capital-intensive industries responded quickly, as early as the third quarter of 2022.

However, the ECB also noted that the impact of the economic downturn on the services sector as a whole was likely to be small.

“Monetary policy shocks affect manufacturing almost twice as fast, or about two-quarters faster, than services,” the bank added. Report by Balazs Kolanyi. Editing: Francesco Canepa

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