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Eurozone Service Sector Growth At 3-month High; Retail Sales Rebound

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Eurozone's services sector grew at the fastest pace in three months in February, amid a broad recovery in activity across the member countries due to improved demand and employment gains, while retail sales rebounded at the start of the year driven by a jump in sales over the internet and mail orders.

The IHS Markit Eurozone Purchasing Managers' Index climbed to a three-month high of 52.8 from 51.2 in January, survey data from IHS Markit showed on Tuesday. The flash reading was 52.3.

A PMI score above 50 suggests growth in the services sector.

Elsewhere on Tuesday, the EU statistical office Eurostat reported that retail sales rebounded in January, almost entirely erasing the slump in December. Sales grew 1.3 percent from December, when they fell a 1.4 percent, revised from 1.6 percent. The increase was in line with economists' expectations.

All countries witnessed growth in services activity with France and Italy registering modest gains and Germany, Ireland and Spain logging robust expansions, the IHS Markit survey showed.

Growth in new orders placed pressure on capacity and employment in the sector grew at a marked and faster pace in February. Increased demand for labor was matched with higher salaries in several cases and this led to a sharp increase in overall operating costs.

Firms tried to protect margins by raising output charges. Business confidence hit a four-month high, but remained below-trend.

The Composite PMI, which combines both manufacturing and services, rose to a three-month high of 51.9 in February from 51 in January. The flash reading was 51.4.

All main euro countries, except Spain, registered faster growth in private sector activity in February. The pace of growth improved in Germany, France and Ireland, but slowed in Spain. In Italy, the contraction was the slowest in two months.

The notable divergence between the performance of the manufacturing and services sectors remained. Ongoing trade tensions, weakness in the automobile industry and political uncertainties continued to dampen growth in the manufacturing sector.

"Measured overall, the survey shows the quarterly rate of GDP growth picking up to 0.2 percent in February from 0.1 percent in January, meaning the first quarter could see the eurozone economy struggle to beat the 0.2 percent expansion seen in the fourth quarter of last year," Chris Williamson, Chief Business Economist at IHS Markit said.

The monthly rebound in retail sales was largely led by a 2.8 percent surge in sales through mail orders and internet. Sales of electrical goods and furniture rose 2 percent and those of automotive fuel grew 1.6 percent.

Food, drink, and tobacco sales increased 0.6 percent and those of pharmaceutical and medical goods grew 0.7 percent. Total non-food sales excluding automotive fuel increased 1.7 percent.

On a year-on-year basis, retail sales rose 2.2 percent in January, which was the fastest pace in three months. Sales grew 0.3 percent in December. Economists had expected 2.1 percent growth.

The stronger data today comes as the ECB prepares to hold its next policy session on March 7.

The bank President Mario Draghi will unveil the latest set of macroeconomic projections prepared by the ECB Staff.
Economists widely expect further downgrade to the growth and inflation forecasts.

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