Euro zone recovery slips again as pressure on ECB to act mounts

Euro-area services output expanded at the strongest pace in almost three years, helping create jobs in a region suffering from low inflation, anemic growth and unemployment close to a record high.

A Purchasing Managers’ Index rose to 53.2 last month from 53.1, London-based Markit Economics said today. That’s less than the May 22nd preliminary reading of 53.5. The index has held above the 50 mark, which separates growth from contraction, for 10 months. A measure of manufacturing and services activity declined to 53.5 from 54 in April.

"Although the euro zone is enjoying its best performance in three years, this is an uneven, stuttering and lackluster recovery," said Chris Williamson, chief economist at Markit in London. "Employment has also returned to growth in recent months, but the rate of economic expansion remains too low to generate enough job creation to bring unemployment down to any significant degree." Joblessness in April ranged from 4.9 per cent in Austria to 25.1 per cent in Spain and averaged 11.7 per cent in the 18-nation currency bloc, adding to the challenges European Central Bank officials are facing in their efforts to rekindle growth and prevent deflation. Policy makers convening in Frankfurt tomorrow will probably lower economic forecasts and add stimulus measures. The euro-area economy expanded 0.2 percent in the first quarter, and PMI data are consistent with growth of as much as 0.5 per cent in the current period, Markit said.

While Germany “remains the key driver of the region’s recovery,” France is a “major drag,” Williamson said. A gauge of manufacturing and services activity in Europe’s largest economy eased to 55.6 in May, while French output contracted. Companies hiring workers in Germany and Spain offset job cuts in Italy and France, leading to a second monthly increase in employment in the euro area. Even so, the jobless rate has hardly budged from a record 12 per cent last year.

Yesterday a survey showed that Irish manufacturing activity grew for a 12th successive move in May, albeit at a weaker rate. It also indicated that companies in the sector hired staff at the fastest rate in nearly 15 years, primarily as a result of increasing workloads linked to new export orders.

Bloomberg