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Wednesday, 3 October, 2001, 11:59 GMT 12:59 UK
Attack hits European service sector
Waiter at work
The survey brings bad news for service sector staff
Recession fears in Europe were heightened by news that the service sector shrank in September for the first time in at least three years.

The eurozone service sector's contraction was caused by hightened consumer nervousness following the terrorist attacks on the US, according to a Reuters survey.

"This data highlights the potential for further deterioration in euro area growth," UBS Warburg's Edward Teather said.

The Reuters Services Purchasing Managers Index (PMI) declined to the lowest level in the survey's history in September and was worse than expected.

The news agency has carried out the survey of 2,000 purchasing managers for three years.

The figures were "very weak, full stop," agreed BNP Paribas' Ken Wattret.

"I guess there is an over-reaction, a knee-jerk response to events in the US, but its pretty clear that the downward risks to economic sentiment short-term are very large."

Worse than manufacturing

Ahead of the survey, analysts had high hopes for the service sector's ability to continue to grow, even though a survey released on Monday suggested the manufacturing sector is shrinking

Such hopes were dashed by the Reuters survey.

"Significantly, the decline in the euro area services PMI in September was sharper than the equivalent manufacturing PMI," Mr Teather said.

"Fears of a world wide recession, already evident before this month, heightened significantly following the terrorist attacks," said the company that compiled the survey on behalf of Reuters, NTC Research.

Rate cut

Economic weakness in the service sector strengthened hopes of a cut in interest rates when the European Central Bank meets next week.

The data "supports our expectation of a cut in the ECB's rates on 11 October", said Mr Teather.

In the US, the cost of borrowing was slashed for the ninth time on Tuesday.

Full coverage of the economic impact of the attacks in the US on the global economyGlobal fallout
The economic impact of the terrorist attacks
See also:

03 Oct 01 | Business
UK shoppers shrug off gloom
02 Oct 01 | Business
Fed cuts rates for ninth time
03 Oct 01 | Business
Bank of England mulls rate cut
03 Oct 01 | Business
UK housing market stalls
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