Business activity in the Eurozone service sector stabilised in January, with a marginal expansion ending a four-month period of contraction. Underlying conditions in the sector nonetheless remained lacklustre overall, as inflows of new business fell further and job losses were recorded for the first time since April 2010.

The final Markit Eurozone Services Business Activity Index posted 50.4 in January, up from 48.8 in December (but down from the earlier flash estimate of 50.5). Growth was recorded in Germany and France, with rates of expansion accelerating in both cases. In contrast, Italy, Ireland and Spain all reported lower levels of business activity.

Inflows of new business declined for the fifth successive month in January. The rate of contraction was the weakest seen over that period, however, having now eased for three consecutive months. Inflows were broadly unchanged in both France and Germany, while Spain and Italy saw further reductions in new work – although the rates of contraction were slower than one month earlier.

With inflows of new work still falling, companies were reliant upon previously placed orders to support activity. Backlogs of work fell in all of the nations covered by the survey, with the steepest reductions seen outside of the big-two nations.

The ongoing weakness in new demand and reductions in backlogs of work led to job losses for the first time since April 2010. However, the rate of decline was only marginal.
Payroll numbers were cut in Ireland, Italy and Spain, offsetting a solid increase in Germany. Rates of reduction in Spain and Ireland were the fastest since November 2009 and April 2010 respectively, whereas the pace of decline eased slightly in Italy. Staffing levels were broadly unchanged in France.