Markit's Composite Purchasing Managers' Index (PMI) showed that
while output across the bloc remained solid in May the pace of
growth eased - despite output prices falling for the 26th straight
"Today's PMIs remain consistent with some recovery in the euro
zone," said Annalisa Piazza at Newedge Strategy.
"That said, we rule out that the picture of moderate recovery will
be an obstacle for the ECB to justify further accommodation this
ECB policymakers have flagged a move at Thursday's meeting. Sources
told Reuters last month the bank was preparing a package of policy
options, including cuts in all its interest rates and targeted
measures aimed at boosting lending to small and mid-sized
Annual euro zone inflation, which the ECB prefers to be just under 2
percent, fell unexpectedly in May to just 0.5 percent, increasing
the risks of deflation and making a policy response on Thursday a
Industrial producer prices, a proxy for consumer prices, fell as
expected both on the month and on a year ago in April, Eurostat also
said on Wednesday.
In Britain, which does not use the euro, the services industry
expanded faster than expected in May, and hiring notched a 17-year
high, adding to a debate at the Bank of England about how soon it
should raise rates.
The BoE is widely expected to be the first major central bank to
begin hiking interest rates from a record low of 0.5 percent -
although not until next year.
"Record low interest rates are no longer necessary. The (UK) economy
is growing rapidly and, if anything, is picking up pace," said
Christian Schulz at Berenberg.
Just as Britain's recovery seems to be progressing at a faster rate
than that of the neighboring euro zone economy, parallel divergences
have emerged within the currency union.
The bloc's growth was once again supported by Germany and pointed to
euro zone GDP expanding 0.4-0.5 percent this quarter. But French
business activity slipped back into contraction after just two
months of growth.
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Similarly, accelerating growth in the service industry was offset by
an easing in manufacturing.
The Composite PMI, widely seen as a good gauge of growth, dipped to
53.5 in May, shy of a flash reading of 53.9 and below April's final
54.0. But it held above the 50 mark dividing growth from contraction
for the 11th month running.
The slowdown in growth came despite firms again cutting prices. The
output price index nudged up to 48.8 from 48.7 but has held below
the break-even mark since April 2012.
"The overall rate of growth is just not strong enough to allow firms
to push through price hikes. This is perhaps the final nail in the
coffin for hopes of a robust recovery without stimulus," said Chris
Williamson, chief economist at Markit.
The index for the euro zone's vast service industry rose to a near
three-year high of 53.2 in May from 53.1 in April as new business
came in at its fastest pace since mid-2011, with the related
subindex rising to 52.8 from 52.3.
First quarter GDP growth was confirmed at just 0.2 percent earlier
on Wednesday, leaving currency and bond markets little moved as they
await the ECB's decision on Thursday.
(Editing by John Stonestreet)
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