Europe's property sector hit hardest

From the FT this morning:


Europe's financial services industry, and especially the property sector, has been hardest hit by the global credit squeeze, a closely watched survey has shown.

Growth in European Union financial services went into reverse in October, with the sector reporting its first monthly contraction since the terrorist attacks of September 11 2001, according to details of purchasing managers' indices published on Monday by NTC Economics.

Within the financial services sector, property-related service companies saw the steepest rate of decline.

The latest data reinforce other evidence suggesting that the global credit squeeze has started to have a significant macroeconomic impact across Europe - although its extent and likely duration remain unclear.

The overall all-sector index for the EU suggested that economic output grew in October at the slowest rate since September 2005. The detailed breakdown of the results suggests that much of that slowdown was concentrated in those industries most obviously affected by the financial market turmoil, such as banking. Financial services had already seen a marked weakening in growth since July.

However, out of eight broad industries surveyed by NTC Economics, only telecommunications and consumer services reported growth in October at rates above that seen a year ago - suggesting that the effects of the financial market turmoil over the past few months had become more widespread. The technology sector saw the weakest growth for more than four years.

"Whether that is contagion from the credit turmoil or whether it is a broadening of the slowdown that had taken place before the summer, is a difficult one to answer ... There might be a little bit of both," said Jacques Cailloux, economist at the Royal Bank of Scotland.

Given London's importance as a financial sector, the UK might have been expected to be particularly affected, but service sector activity has also been hit in the eurozone.

Economic activity across Europe is likely to have been hit by the higher financing costs resulting from the credit squeeze. At the same time, a significantly stronger euro and the delayed effects of higher European Central Bank interest rates since the end of 2005 are also likely to have acted as a brake on growth. More recently, a pick-up in inflation would have eroded consumer spending power.