Eurozone business growth rate stays weak as optimism wanes
- 21 Jun 2019
Eurozone business activity picked up a touch this month but worries about slowing global growth and the impact of spreading trade conflict meant firms were at their least optimistic in nearly five years, a survey showed.
Activity was at its strongest since November but it was unbalanced, with manufacturing activity contracting for a fifth month, overshadowing a small uptick in the services industry.
The downbeat showing comes just days after European Central Bank President Mario Draghi signalled one of the biggest policy reversals of his eight-year tenure and said the Bank would ease policy again if inflation failed to accelerate.
Despite years of ultra-loose monetary policy, prices have failed to rise as fast as the ECB wants, while a slew of recent data have suggested growth is slowing.
IHS Markit’s Flash Composite Purchasing Managers’ Index (PMI), which is considered a good guide to economic health, only nudged up to 52.1 this month from a final May reading of 51.8, beating the median expectation in a Reuters poll for 51.8.
Earlier figures from the bloc’s two biggest economies, Germany and France, remained weak but surprised on the upside, offering a boost to European equities.
“The small improvement in the flash PMIs for June will not be enough to deflect the ECB from its new plan to ease policy within the coming months,” said Andrew Kenningham, chief Europe economist at Capital Economics.
Kenningham reckons the ECB will formally strengthen its forward guidance next month and then cut the deposit rate by 10 basis points to -0.5% in September. A Reuters poll last month, taken before Draghi’s comments, found no prospect of the ECB raising interest rates through to the end of 2020 and that its next policy move would be to tweak its forward guidance towards more accommodation.
IHS Markit said the PMI pointed to GDP growth of just over 0.2% this quarter, below the 0.3% predicted in the Reuters poll.
Firms in the bloc’s dominant service industry staged a modest upturn, with that PMI rising to 53.4 from May’s 52.9, ahead of expectations for no change.
Reuters
