Services in the euro zone might contract even further, the ECB warns

According to a report released on today by the European Central Bank, the services sector in the euro zone may be less affected than manufacturing if interest rates continue to rise in the upcoming quarters.

The majority of 2023 saw a recession in the manufacturing sector of the currency bloc, in part because to the ECB's swift rate increases, which were a component of the central bank's efforts to rein in out-of-control inflation.

However, the demand for services continued to be rather strong, which fueled total growth and perplexed some.

This might alter, though, since the ECB noted that services activity usually follows manufacturing with a two-quarter lag.

In less than a year, the European Central Bank (ECB) increased interest rates from severely negative levels to a record high of 4% as an unanticipated spike in inflation rippled through the economy, driving up prices for everything from energy and food to services.

Even while services looked resilient, capital-intensive industries reacted swiftly—as early as the third quarter of 2022.

However, the ECB also pointed out that there will probably be less of an overall effect of the slump on services.

"Monetary policy shocks have an impact on manufacturing that is almost twice as strong and around two quarters faster than their impact on services," the bank stated.

(Sources: investing.com, reuters.com)