By: Dr. Mike Campbell

One of the tools economists and market watchers use to read the tea leaves is the survey. One of the most important surveys is the Markit Eurozone services purchasing manager’s index (PMI). The most recent index provided a surprisingly good (relatively!) performance of 48.8. Whilst any value below 50 suggests that the sector is contracting, the figure indicates that the rate of the contraction within the sector has eased – meaning that it is not getting worse as quickly as it has been: good news of sorts. The manufacturing survey also came in above expectations at 46.9; a rise of 0.5 over the November figure.

However, as always, the Devil is in the details. The breakdown of the data shows that there is divergence between stronger and weaker Eurozone economies with German business activity increasing and remaining stable in France, but declining in Spain and Italy which are imposing austerity measures designed to reduce their debt burdens.

Although the figures revealed by the survey provide a crumb of comfort at the end of 2011, the quarterly data still show that the performance for the last three months of the year was the worst since the Q2 2009. They do nothing to dispel the gloomy predictions of continuing contraction within Europe and a threatened return to recession. Chris Williamson, chief economist at Markit said "Forward-looking indicators suggest that a further decline is on the cards for the first quarter of 2012. In particular, orders for goods and services continued to collapse, suggesting that output and employment will be cut as we move into the New Year".