Growth in the euro zone's dominant service sector slowed faster than expected this month and manufacturers tapped the brakes as growth in new orders decelerated, surveys showed today.
Preliminary purchasing managers surveys pointed to marginally slower economic growth in the euro zone in the second quarter. Worryingly for policymakers, a big divide remained between economic performance this month in France and Germany, and struggling periphery members of the 17-nation region.
However, they will take some cheer from the fact that prices did not rise so steeply this month.
"Growth slowed in France and Germany but it is still far outpacing what we have seen in the rest of the region where growth has slowed to near stagnation. That is a really disappointing signal," said Chris Williamson at Markit.
The Flash Markit Eurozone Services Purchasing Managers' Index (PMI) fell to 55.4 in May from April's 56.7, its lowest level since December, and missing expectations for 56.5.
But this is the 21st month the index, which measures the activities of companies ranging from banks to hotels, has been above the 50 mark that divides growth from contraction.
The flash manufacturing PMI fell to 54.8 from 58.0 in April, much lower than consensus expectations in a Reuters poll for 57.4, while the output index dropped to 55.3 from 60.2.
The euro zone composite PMI, a broader measure of the private sector which combines the services and manufacturing data, fell to 55.4 from 57.8, below forecasts for 57.4.
The composite index is often used as a guide to growth and Markit said it was consistent with quarterly growth of 0.7 per cent for the second quarter.
Economists polled by Reuters earlier this month predicted growth of 0.4 per cent this quarter.
Earlier data from Germany, Europe's largest economy, showed the pace of growth in its manufacturing sector slowed considerably from April's near record high while its service sector PMI also dropped.
Growth in the French service sector slowed only marginally from last month's more than 10-year high but its manufacturing sector grew at its slowest pace in four months.
The new orders index for manufacturers fell to 53.8, its lowest level since September, from April's 57.4, despite the competitive advantage of a recent weakening in the euro.
"Export growth slowed very sharply outside France and Germany, indicating that the weakening global trade flow pattern that we have seen recently is beginning to affect the periphery. It's not good news," Williamson said.
Optimism among service sector firms was at its lowest since July 2009, with the business expectations index falling to 63.9 from last month's 66.1.
Despite this, firms continued to take on more workers, albeit at a slower pace than last month, with the composite employment index dipping to 52.7 from last month's 53.1.
The official euro zone unemployment rate held steady at 9.9 per cent in March.
Reuters
