Euro zone business growth slows in June as French activity drops: PMI

[July 03, 2014]  By Jonathan Cable

LONDON, (Reuters) - Euro zone business expanded at the slowest rate in six months in June, a survey showed on Thursday, but new orders poured in at the fastest pace in over three years, suggesting growth will accelerate in the second half of the year.

Activity in France, the bloc's second-biggest economy,shrank at the fastest rate in four months and even in Germany, the backbone of the common currency area, the pace of growth eased.

Markit's Composite Purchasing Managers' Index (PMI), based on surveys of thousands of companies across the region and seen as a good indicator of growth, was in line with a preliminary reading of 52.8, down from May's 53.5.

The headline PMI for the euro zone's service industry fell to 52.8 from 53.2, also in line with an earlier flash reading and above the 50 mark that signifies growth.

"At first glance, June's PMI survey results make grim reading and raise worries that the euro area's recovery is already fading," said Chris Williamson, chief economist at Markit.

"Dig a little deeper, however, and there are grounds for optimism. With new orders rising at the fastest rate for three years, the pace of economic growth should also pick up again as we move into the second half of the year."

A composite sub-index covering new orders jumped to 53.1 from 52.6, its highest reading since May 2011. But some of that business was generated by firms cutting prices again.

A PMI measuring output prices in the service industry was below the break-even level for the 31st month, coming in at 49.2 although that was the highest reading since March 2012.

The data will be disappointing reading for the European Central Bank's Governing Council members, who are expected to have made no change to monetary policy when they announce their latest decision at 1145 GMT (7.45 a.m. EDT).

ECB President Mario Draghi announced a raft of measures last month to counter the threat of deflation and support the recovery, including cutting the deposit rate below zero and offering more long-term loans aimed at boosting bank lending to businesses.

Annual consumer inflation was 0.5 percent in June, further highlighting the bloc's feeble economic state as households avoid spending and retailers try to keep down prices to entice shoppers.

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