Brexit looms over eurozone
Europe’s private sector slowed more than predicted
LONDON: Growth in the eurozone’s private sector slowed more than economists predicted in June, with firms expressing concerns about uncertainty ahead of the UK’s vote on its European Union membership.
A Purchasing Managers’ Index for manufacturing and services fell to 52.8 from 53.1 in May, London-based Markit Economics said yesterday.
The decline to the lowest level since January last year was driven by a slowdown in services activity. Business expectations in that sector slipped to the weakest in almost a year.
“Rising political uncertainty appears to have caused the pace of expansion to weaken slightly and business confidence about the outlook to deteriorate,” said Chris Williamson, chief economist at Markit.
“June’s survey data point to steady though disappointingly lacklustre economic growth.”
Markit’s survey suggests eurozone expansion slowed to around 0.3% in the second quarter from 0.6% in the first three months of the year.
Companies across the 19-nation eurozone are bracing for the outcome of a British referendum that remains too close to call.
A decision to leave the EU could send shockwaves through the continent at a time when European Central Bank (ECB) officials warn that their scope for reviving growth and inflation is limited without the help of governments.
The ECB is starting a lending programme known as TLTRO-II this week, allowing banks to borrow money for four years at an interest rate that begins at zero and could ultimately be negative.
Greek institutions will also have access to the funds after the ECB decided on Wednesday to reinstate a waiver on the country’s junk-rated debt.
Economists predict the region’s banks will take 420 billion euros in the first of four loan offers, according to a Bloomberg survey.
Markit said backlogs of work rose to their highest level in nine months, leading firms to add staff at the fastest rate this year.
“The good news is that demand is growing at a sufficiently strong pace to sustain reasonably robust hiring, but it’s not strong enough to generate inflationary pressures,” Williamson said.
“Firms are having to soak up higher costs, notably for fuel and labour, but cut their own selling prices amid intense competition.”
The ECB has deployed unprecedented stimulus to bring inflation back in line with its goal of just under 2%, including large-scale asset purchases, negative interest rates, and long-term loans to banks. Consumer prices fell an annual 0.1% in May. – Bloomberg