The euro zone's economic recovery moderated slightly this month but companies are more optimistic about the coming months despite an ongoing divergence in growth rates between member countries, a survey showed today.
Markit's Eurozone Flash Services Purchasing Managers' Index, made up of surveys of around 2,000 businesses ranging from banks to restaurants, slipped to 55.6 in August from 55.8 in July.
The index has now been above the 50.0 mark that divides growth in business activity from contraction for a year and pipped the consensus forecast in for 55.5.
While the pace has slowed, firms in the 16-nation region's dominant service sector grew more optimistic, driving the business expectations index up to 68.1 this month from 66.5 in July.
"There is still quite a bit of momentum in the recovery but we are going to see it ease off from the bumper figures we saw in the second quarter," said Rob Dobson at Markit.
The region's biggest economies Germany and France have picked up smartly over recent months but this has not been matched in Spain and Italy.
The euro zone manufacturing sector, which drove a large part of the economy's return to growth in the third quarter of last year, also saw the pace of growth slow.
The flash manufacturing index fell to 55.0 in August from 56.7 in July, missing forecasts for 56.2, while the output index dropped to 57.2 this month, from 58.7 in July.
The composite index, made up from the services and manufacturing sectors and often used to predict overall growth, dipped to 56.1 this month from 56.7 in July, short of expectations for 56.4.
But firms continued to hire workers, although at a slower pace than last month, with the manufacturing employment index nudging down to 51.0 from July's 51.1. Unemployment in the euro zone held steady at 10 percent for the fourth month running in June.
The euro zone economy escaped from its worst post-war recession in the third quarter of last year and preliminary data showed the economy grew a faster-than-expected 1.0 per cent between April and June. It is seen growing 0.4 per cent in the current quarter and then 0.3 per cent in the following three quarters.
Yet, worryingly for policymakers, diverging rates of recovery in the region seen in previous months appear to be widening.
"We are seeing this very much centred on the core nations, it has not spread to the peripheral nations and in many ways this divergence is widening," Mr Dobson said.
"This is like what we saw in the second quarter where we had strong growth particularly in Germany and partly in France sitting quite unevenly with muted performance in Spain, Italy and Greece. So outside of those two main nations conditions are still subdued."
Earlier data today from Germany, Europe's biggest economy, showed its service sector accelerated at its fastest pace in three years this month but expansion in its manufacturing sector slowed from July's near 14-year survey record high.
Conversely, in neighbouring France the pace of growth slowed in its service sector but accelerated for manufacturing firms.
The euro zone's composite output price index rose to 50.3 this month from 49.4 - its highest reading since October 2008 and only the second time it has been above 50 since then - indicating firms were able to pass on some rising costs to customers.
Final data released last week showed prices rose 1.7 per cent year-on-year in July, in line with previous estimates and still below the European Central Bank's 2 per cent target ceiling.
Reuters