LDN - Business

Euro zone growth still easing as industry stutters: PMI

[September 21, 2018] By Jonathan Cable

LONDON (Reuters) - Euro zone business growth eased again in September, adding to signs that momentum in the currency bloc is well past its peak with country data for Germany and France also highlighting a slowdown, a survey showed on Friday.

While the regional slowdown was slightly sharper than expected, growth remained robust and firms were able to increase their prices, purchasing managers said, offering some comfort to policymakers at the European Central Bank.

But the surveys highlighted a divergence between services and manufacturing.

The bloc's dominant service industry beat forecasts for no change in the pace of growth from last month. IHS Markit's Euro Zone Services Flash Purchasing Managers' Index (PMI) rose to 54.7 from 54.4. Anything above 50 indicates growth.

Manufacturers, however, failed to live up to expectations. The factory PMI slumped to a two-year low of 53.3 from 54.6, significantly below all forecasts in a Reuters poll which had a median prediction of 54.4.

An index measuring output, which feeds into a composite PMI, sank to 52.8 from 54.7. It hasn't been lower since May 2016.

Suggesting little pick-up heading into the fourth quarter, factory new order growth also slowed sharply with the index falling to a 25-month low of 51.4 from 53.0. Exports, which include trade within the bloc, were flat.

"Euro zone industry continues to struggle with the global trade uncertainties coming from an imminent Brexit and the escalating global trade conflict," said Bert Colijn at ING.

U.S. President Donald Trump on Monday imposed a 10 percent tariff on about $200 billion worth of Chinese imports and threatened duties on around $267 billion more if Beijing retaliated, which it has done.

The euro <EUR=> dipped briefly after the PMI data but then recovered as investors gravitated to the view the latest exchange of tariffs between the United States and China may be less damaging than initially feared.

Economists polled by Reuters earlier this month unanimously said the U.S.-China trade war threatened the outlook for the euro zone and that economic growth will be modest at best over the coming year.

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A saleswoman displays hats for sale in a hat shop in Marseille, France, September 19, 2018. REUTERS/Jean-Paul Pelissier

Still, the ECB plans to phase out its asset buying program this year and is expected to start interest rate hikes next autumn.

"As the index is still consistent with a fairly decent pace of growth, the ECB is unlikely to change its plans to normalize policy very gradually," said Jessica Hinds at Capital Economics.

IHS Markit said the composite PMI, which dipped in September to 54.2 from 54.5, below a median forecast in a Reuters poll for 54.4, pointed to GDP increasing 0.5 percent this quarter. The Reuters poll predicted 0.4 percent growth.

It was a similar story in the bloc's two biggest economies.

Earlier figures from Germany and France, the only two euro zone members for which flash data are published, showed growth slowed in both countries by more than was expected.

A euro zone composite future output index, which measures optimism, rose to 61.9 from August's 23-month low of 61.6. But official figures released on Thursday showed consumer confidence fell in September by more than expected.

Services firms increased headcount at the same strong pace as in August. The employment index - which is a lagging indicator - held steady at August's 55.3, a level which had not been seen since October 2007.

(Editing by Hugh Lawson)

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