PICKING UP
Eurozone shakes off a sluggish start to the year with increased business activity in June,
Business activity in the eurozone picked up in June for the first month in five—a first sign that the currency area’s economy may be shaking off a sluggish start to the year.
The eurozone economy entered 2018 on a high, having recorded its fastest expansion in a decade during 2017 as it outpaced the U.S. for the second straight year.
But official figures for the first three months of the year recorded a sharp slowdown and there have been few signs of a rebound in data released since then.
The European Central Bank’s economists last week cut their growth forecast for this year in response to a weak first quarter, but policy makers nevertheless said they intend to end their program of bond purchases in December. This is based on their view that growth would continue to be “solid and broad-based.” Friday’s survey provides some evidence to back that claim.
“The improvement… will be of come comfort to the ECB,” said Chris Hare, an economist at HSBC. “But we probably need to wait a few months to see exactly where growth will settle.”
Data firm IHS Markit said Friday its composite Purchasing Managers Index for the currency area—based on survey responses from 5,000 businesses—rose to 54.8 in June from 54.1 in May.
A reading above 50.0 signals an expansion in activity. That was a stronger outcome than the decline to 53.7 forecast by economists who were surveyed by The Wall Street Journal last week.
IHS Markit said the average of the measure over the three months through June points to on-the-quarter growth of 0.5%, up from 0.4% in the first quarter but weaker than the 0.7% seen at the end of 2017. It warned that there were continued signs of weakness in the manufacturing sector, which relies more heavily on exports than its services counterpart.
“Manufacturing is looking especially prone to a further slowdown in coming months, with companies citing trade worries and political uncertainty as their biggest concerns,” said Chris Williamson, chief business economist at IHS Markit.
ECB policy makers worry that the imposition of new tariffs on some items traded between the U.S. and the European Union could dampen confidence, making businesses wary of signing new deals and undertaking new investments.
Those concerns won’t have been eased by the decline in the PMI for the manufacturing sector to 55.0 from 55.5 in May, an 18-month low.
“The manufacturing PMIs’ continued downward trend in June is a clear reflection of the U.S.’s persistent hostility with key trading partners and with no end in sight for the trade dispute, industry confidence is likely to keep on deteriorating,” said Moritz Degler, an analyst at Oxford Economics. In a speech Monday, ECB President Mario Draghi high- lighted signs that some businesses have hit capacity constraints as a potential drag on growth during the remainder of the year. And according to IHS Markit, shortages of raw materials and workers with needed skills were “commonly reported” by the businesses it surveyed.
But while manufacturing continued to weaken, service providers bounced back in June, with the PMI for the sector rising to 55.0 from 53.8 in May, a four-month high.