The euro-zone economy may be slowing, if a closely-watched metric is any indication.

The RBS/NTC Flash Euro-zone Purchasing Managers Index for service companies dropped to 50.6 in May 2008 from 52.0 in April 2008, Reuters reported Friday, via The Guardian.

The level matches a 4½ year low for the index reached in January 2008. Readings above 50 indicate expansions; below 50, contractions.

The low May 2008 RBS/NTC statistic follows on the heels of the European Union's announced 0.7% GDP growth for Q1 2008, led by 1.5% GDP growth in Germany.

Europe's major markets closed sharply lower Friday on the news. London's FTSE fell 94.30 points to 6,087.30, Germany's DAX declined 126.28 to 6,944.05, and France's CAC fell 94.97 to 4,933.77.

Two-tier Europe?

Economist David H. Wang told BloggingStocks Friday investors / traders should not jump to premature conclusions regarding the poor RBS/NTC statistic, nor ignore it.


"We need to see more data. On the one hand, it is just one data point, and we need to see more Q2 information on business investment, credit conditions, and consumer demand in Europe, as these will prove to be much more informative on where Europe's economy is headed," Wang said. "On the other hand, the RBS/NTC index may be indicative of some slowing in Europe."

Further, Wang said Europe may experience "diverging economic tiers" in the quarters ahead - - developed Western Europe may face slowing, while emerging market Eastern Europe, with many economies their new to capitalism, may continue to register solid growth rates.

Still, Wang said the euro-zone economy is fundamentally stronger than the U.S. economy, due to the strong euro, a less-oil-intensive transportation network, a lower trade deficit, and not nearly as much housing / credit market stress. "There's a 60-70% chance Europe will not even enter a recession, whereas there's only about a 10% chance the U.S. won't," Wang added.