Services outshine manufacturing globally

London - Robust growth in the global service industry outshone a lacklustre performance from manufacturers last month, pushing firms to increase headcount to meet buoyant demand, business surveys showed on Wednesday.

Following a solid start to the year, the latest survey data add to evidence that the global economy is slowly recovering, with growth becoming more broad-based.

Led by Germany, euro zone businesses enjoyed their fastest growth rate in services - areas from banking to hairdressing - in more than 2½ years

In non-euro zone Britain, the country's services PMI dipped but stayed strong. Data due later on Wednesday is expected to show a similar growth slow down in the United States.

Activity in China's services industry ticked up in February from a 2½-year low the previous month, confirming other data showing a pick-up in services even as manufacturing activity slows.

"The outlook for the year as a whole looks reasonably good and we now forecast for growth to be slightly stronger than last year," said Andrew Kenningham, senior global economist at Capital Economics.

The gulf between expansion in Germany, Europe's biggest economy, and the decline in number 2 France has only been wider once in the 16-year history of the surveys.

"What is maybe more surprising is that France is doing worse than Italy and Spain," Kenningham said.

Germany

Germany's composite PMI in bringing in services and manufacturing - soared to a 33-month high but France's fell further below the break-even mark for contraction where it has languished for most of the past two years.

Italy and Spain, the third and fourth biggest economies in the bloc, both had robust growth.

In contrast, manufacturing growth in Europe and Asia slowed last month, pressured by falling demand from abroad, although the United States bucked the trend with manufacturing expanding at its fastest pace in over three years.

Still, Markit's final Eurozone Composite Purchasing Managers' Index (PMI), which gauges business activity across thousands of companies and is a good guide to economic health, was revised up to 53.3 from an initial flash reading of 52.7.

That was the eighth month above the 50 mark that denotes growth. Markit said the surveys suggest the euro zone economy was on course to grow 0.4-0.5% this quarter, more than the 0.3% growth predicted in a Reuters poll last month. It would be the fastest expansion in three years.

Wednesday's rise in China's services PMI was calculated by HSBC. It tallied with the official non-manufacturing PMI, released earlier in the week, which showed activity at a three-month high, and contrasted with two surveys that showed manufacturing activity slowed in the month.

Premier Li Keqiang told China's annual parliament session that expanding domestic demand will be a major economic driver and an important structural adjustment as the country pushes ahead with reforms to promote consumer-led growth.

A contraction in India's services sector moderated last month but remained stuck below the 50 mark that separates growth from contraction for the eighth month.

More hiring

Services firms in the 18-member euro zone took on more workers for only the second time in more than two years while British companies hired staff at the fastest pace in the 16-year history of the survey.

Unemployment in the euro zone remained stuck near record highs in January but the British rate has fallen rapidly in the last six months.

The data will provide some cheer to both the European Central Bank and Bank of England which will announce their latest policy decisions on Thursday.

Both have slashed borrowing costs to record lows to spur growth and the BoE is widely expected to be the first major central bank to raise rates - albeit not until the second quarter of next year.

The BoE was forced to revamp its guidance last month a mere six months after it tied monetary policy to joblessness after unemployment fell to within a whisker of its 7% target.

Instead, it now focuses on 18 separate measures of data, including spare capacity in Britain's economy, business surveys and the number of hours worked, in order to gauge the right time to start raising rates.

"For the Bank of England, increasing evidence of a tightening labour market will further heat up the debate about when to start withdrawing monetary stimulus," said Christian Schulz, senior economist at Berenberg bank.