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 Business activity in France, the euro zone's second-biggest economy,
shrank at the fastest rate in four months while in Germany, the
largest, the pace of growth slowed.
Service providers also said they cut prices for the 31st month
running to drum up business, although not as sharply as in May. With
June inflation at just 0.5 percent in the euro zone, the surveys
will provide worrying reading for policymakers.
Still, the European Central Bank's Governing Council is not likely
to take new policy action at its meeting on Thursday, after cutting
interest rates to record lows last month and unveiling a
400-billion-euro loan programme.
It is instead expected to give more details about the bank's
existing plans, which the ECB hopes will help entice commercial
banks to lend more freely, particularly to small and medium-sized
companies on the euro zone periphery.
"We are not expecting any further action from the ECB today, it
looks like it has deployed all the policy instruments. (So) we will
wait for the actual implementation later in the year," said Tom
Rogers at Oxford Economics.
Markit's Composite final June Purchasing Managers' Index (PMI) for
the euro zone, based on surveys of thousands of companies across the
region and a good indicator of growth, was in line with a
preliminary reading of 52.8, down from May's 53.5.
The PMI for the euro zone's dominant service industry fell to 52.8
from 53.2, also in line with an earlier flash reading and above the
50 mark that separates growth from contraction.
A resurgence in Spain and Italy supported German expansion but
France again provided the biggest drag on the bloc's tentative
recovery.
French business activity contracted for the second month in a row,
casting fresh doubt on the strength of the 2 trillion euro economy.
"We are looking at quarterly growth in France possibly being flat
again or very weak and that has ramifications for the euro zone,"
Rogers said.
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Euro zone retail sales were flat in May, separate data showed
earlier on Thursday, giving further evidence of a lack of momentum
in the bloc's economy.
It was a different story across the channel in Britain, whose
services industry expanded steadily, suggesting the economy grew
robustly throughout the first half of 2014 and possibly pointing to
an interest rate hike this year.
While Bank of England officials have recently given mixed signals on
the timing of a potential interest rate rise, the BoE is widely
expected to be the first major central bank to begin hiking
borrowing costs.
They say markets have underestimated the likelihood of a move in
2014, but also think more slack needs to be used up before that
happens.
"Rate hikes rising up the agenda has the potential to cause some
minor wobbles in sentiment indicators over the next few months, but
we do not expect a very small interest rate hike to derail what is
looking like an increasingly solid recovery," said Rob Wood at
Berenberg Bank.
(Additional reporting by Ana Nicolaci da Costa, editing by John
Stonestreet)
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