Euro zone services growth decelerated sharply in January from an already weak estimate a few weeks ago, according to a report that may further stoke fears of a European recession.
Three of the big four economies in the 15-nation bloc showed business activity contracting, led mainly by financial services, while only France registered growth during the month.
The euro zone data, from RBS/NTC Economics, will make for difficult reading for the European Central Bank as the figures provide further evidence that growth in prices companies pay and charge is not coming off anywhere near as quickly.
The euro zone's Services Purchasing Managers Index fell a remarkably sharp 1.4 points to 50.6 in January from the flash estimate. It is down 2.5 points from 53.1 in December and is now dangerously close to the 50 mark that divides growth and contraction.
This marked a new four-and-a-half year low for the index and came in well below the lowest forecast of 51.7 in a poll of economists.
The service sector decelerated despite a rise in the region's manufacturing PMI to 52.8 from 52.6, marking the biggest divergence between the two since 2006 when the service sector was boosted by the World Cup soccer tournament.
The steep drop in the services index complicates the ECB's struggle to balance the threat of an economic slowdown becoming a recession against rising inflation.
The German services index skidded into negative territory to 49.2 from 51.2 while Spain's plummeted to 44.2 from 51, prompting unusually strong comment from the survey sponsors.
'These are dreadful numbers. The financial services sector has been hit hard, as well as anything to do with construction,' NTC Chief Economist Chris Williamson said.
France's index fell to 56.6 from 58.9 while Italy completed the downturn by the big four euro zone countries with a drop to 47.9 from 49.7 in December.
Separate figures from Eurostat showed that euro zone retailers saw weaker than expected sales in the key holiday month of December. The volume of retail trade eased 0.1% from November and dropped 2% over 12 months. The results fell short of economists' forecasts.
