Services activity for the European zone is seen as likely to weaken further in the coming quarters due to rising interest rates. However, the impact on the sector may be more modest than on the manufacturing sector, according to a study by the European Central Bank on Tuesday.
The EU's manufacturing sector has been in recession for most of 2023, partly due to the ECB's rapid rate hikes, which are also part of the central bank's efforts to control extreme inflation.
However, demand for services remains relatively strong, boosting overall growth and indirectly raising questions for some parties, the ECB noted.
The ECB raised interest rates from negative to a record high of 4% in just over a year as an unexpected surge in inflation hit the economy. Cost inflation which has caused all kinds of costs from energy and food to services to increase.
Capital-oriented industries responded quickly, as early as the third quarter of 2022, although the service sector faced some challenges. However, the ECB also noted that the overall impact of the decline in services is likely to be smaller.
"Monetary policy shocks have an impact on the manufacturing sector that is almost twice as strong and about two quarters faster than its impact on the services sector," the ECB added.
