LONDON: Business activity in the euro zone's services sector picked up speed again in January, but firms are still reluctant to boost staffing levels, a survey of more than 2,000 companies showed yesterday.

The Reuters Eurozone Business Activity Index, which covers service firms from airlines to banks, rose to 57.3 from 56.6 in December, but remained below a three-year high of 57.5 in November.

"The survey says the recovery is continuing... it also indicates that doubts about the strength of domestic demand may be slightly exaggerated. So overall it's a pretty good survey," said Elwin de Groot of Fortis Bank in Amsterdam.

The business activity index has now kept above the key 50 level that divides growth from contraction for seven months. It came in broadly in line with the consensus forecast of 57.0.

"This is a very positive picture, but it needs to be qualified with the fact that firms are showing a reluctance to expand capacity in line with growth of new business," said Chris Williamson, chief economist at NTC Research, which compiles the survey for Reuters. "We need to watch carefully how that trend will continue over coming months, especially in relation to employment."

The new business index edged up to 57.0 from 56.9 in December, while the business expectations index, which is based on whether firms expect business to be better or worse in a year's time, advanced to a 22-month high of 71.5 from 71.0.

Still, most services firms, like manufacturing companies, are not boosting staffing levels and the employment index slipped to 48.7 from December's 49.6. "With... pricing power remaining weak, there is pressure on margins and firms are addressing that with a reluctance to take on extra staff," said Williamson.

A comparable survey on the US service sector, published by the Institute for Supply Management, was due to be released yesterday.

A Reuters poll forecasts the index to rise to 60.0 from 58.0 in December.

In the euro zone, a companion survey of manufacturers on Monday showed the sector expanded a little further in January as worldwide demand improved, although job weakness held back the index overall.

The services survey covers Germany, France, Ireland, Italy and Spain, which account for 83 per cent of private sector services output in the 12-nation euro bloc.

Out of the biggest economies in the survey, France led the way, surging to 60.1 from 58.2 in December to reach its highest level since December 2000.

Williamson said growth seems to be much more broadly based in France. "In particular the consumer in France seems to be in a much more buoyant mood than, say, in Germany and Italy at the moment," he said. "That is creating a much more even pattern to growth with business-to-business services and consumer services both reporting strong current growth and buoyant expectations for the year ahead."

Staffing levels increased in France but fell faster in Germany where the employment index slipped to 45.1 from 46.3. The main German index rose to 55.2 from 54.6. The Italian service sector continued to perform well, although its headline index dropped to 57.2 from 58.0, its second monthly fall.

Business expectations in France soared to their highest since May 2000, but those in Italy and Germany fell on concerns about the strength of the euro and subdued consumer confidence, NTC Research said.

Underlining companies' reluc-tance to take on more staff to handle new business, the survey showed mounting backlogs of work, pushing the outstanding business index to 52.5, its highest since October 2000.

Pay pressures remained generally muted in January and the input prices index dipped to 55.3 from 55.6 in December.

The index for prices charged slipped to 50.0 from 50.3. "An inability to raise charges... was attributed to intense competition," said NTC Research.

(China Daily 02/05/2004 page12)