Services activity across the euro zone expanded at a slightly faster pace in February as demand conditions improved, according to a Purchasing Managers’ Index (PMI) survey compiled by S&P Global. The HCOB euro zone services PMI rose to 51.9 from 51.6 in January, signalling continued growth, though the pace of expansion remained modest. Economists noted that while momentum improved compared with the previous month, overall performance in the sector was still subdued.

New business volumes increased modestly, extending an expansion trend that began in August, while companies continued reducing backlogs of work for a fourth consecutive month. However, hiring growth slowed to a five-month low as business confidence softened. At the same time, cost pressures intensified sharply, with firms reporting rising wages, energy prices and transportation costs pushing input inflation to its highest level in nearly three years.

The data suggests the European Central Bank may remain cautious about cutting interest rates further, as persistent price pressures remain a concern. Among major economies, Germany recorded the strongest services growth, while activity slowed in Italy and Spain, and France’s services sector continued to contract, albeit at a slower pace. The services rebound helped lift the euro zone’s composite PMI to a three-month high, extending the region’s economic expansion to 14 months.

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