Euro zone business growth stalls in June

Euro zone business growth stalls in June

© Reuters. FILE PHOTO: Empty chairs and tables are pictured on the first day of the temporary closing of restaurants, as the spread of coronavirus disease (COVID-19) continues in Berlin, Germany, November 2, 2020. REUTERS/Annegret Hilse/File Photo

LONDON (Reuters) – Euro zone business growth virtually stalled this month as the downturn in manufacturing deepened while activity in the bloc’s dominant services industry barely expanded, a survey showed on Friday.

HCOB’s flash Composite Purchasing Managers’ Index (PMI) for the bloc, compiled by S&P Global and seen as a good gauge of overall economic health, sank to a five-month low of 50.3 in June from May’s 52.8.

That was barely above the 50 mark separating growth from contraction and below all forecasts in a Reuters poll which had predicted a more modest decline to 52.5.

“After euro zone GDP fell for the second time in a row in the first quarter, the probability has increased somewhat that the GDP change will again carry a negative sign in the current quarter,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

Overall demand declined for the first time since January. The composite new business index dropped to 48.3 from 50.3.

A PMI covering the services industry slumped to 52.4 from 55.1. That was also below all forecasts in the Reuters poll which had a median forecast of 54.5.

Yet despite that slowdown firms still increased headcount – the employment index was 54.1, albeit lower than May’s 54.6.

Manufacturing activity has been in decline since July and the downturn deepened this month with the factory PMI dropping to 43.6 from 44.8, also below all forecasts in the Reuters poll and its lowest since May 2020 when the COVID pandemic was cementing its grip on the world.

An index measuring output, which feeds into the composite PMI, fell to 44.6 from 46.4.

The fall came despite factories reducing prices for a second month as the cost of production dropped at the fastest pace since mid-2009.

That drop will likely be welcomed by policymakers at the European Central Bank who have failed to get inflation back to their 2% target despite having embarked on their most aggressive policy tightening schedule in the Bank’s history.

Last week the ECB raised euro zone borrowing costs to their highest level in 22 years and said stubbornly high inflation all but guaranteed another move next month and likely beyond that too.

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