A survey has shown that following a sudden slowing in the pace of expansion by services firms, roaring euro zone business growth tailed off unexpectedly toward the end of the first half of 2017.
But pressure will likely be maintained on policymakers at the European Central Bank to pare back soon on their ultra-loose monetary policy with inflation relatively resilient and overall growth still quite strong.
In a small step towards normalization, the ECB gave up its bias for more rate cuts earlier this month.
In April and May, noting its highest since April 2011, the IHS Markit’s Flash Composite Purchasing Managers’ Index touched 56.8 but which fell to 55.7 for the month of June. Ion this index, a reading above 50 indicates growth.
None of the economists polled in a Reuters poll had predicted such a big fall and the poll had predicted no change to the index, seen as a good guide to growth.
“At the moment I’m not too worried about it,” said Chris Williamson, chief business economist at IHS Markit.
“We may be reaching the stage where growth has been strong for quite a few months and we are hitting a few ceilings in terms of degrees to which firms can expand capacity.”
Faster than the 0.5 percent predicted in a Reuters poll earlier this month, the second quarter GDP growth of 0.7 percent, the PMI pointed out, said Williamson. The PMIs had correctly indicated a 0.6 percent expansion last quarter.
The ECB said in a regular economic bulletin on Thursday that inflation will hover near current levels in coming months, and economic data points to solid growth in the euro zone in the second quarter.
Albeit at a weaker pace as input cost pressures eased, firms increased prices in June, as they have done for the previous seven months. The output prices index dipped from 52.4 to 51.8.
Not performing to expectations were firms operating in the bloc’s dominant service industry. Falling well below even the most pessimistic forecaster in a Reuters poll of over 40 economists, the services PMI registered 54.7 from 56.3.
“It’s not really clear what that’s about, there was no single cause we can pinpoint and I’m inclined to treat it just as some payback for the sheer strength of growth in recent months,” Williamson said.
However, the employment index was steady at its May figure of 53.8 which is one bright spot. Earlier in March of this year, only once since early 2008, it has only been higher than that.
It was a far better month for the factories than was predicted. Climbing to a more than six-year high of 57.3 from 57.0 wad the manufacturing PMI. It was suggested that the figure would dip to 56.8 in the Reuters poll.
Noting its highest since April 2011, an index measuring output nudged up to 58.5 from 58.3.
New orders surged and factories ran down stocks of finished goods at the fastest rate for nine months which effectively implies that the momentum would continue into July. The related subindex sank to 47.9 from 49.1.
(Adapted from CNBC)