LONDON (June 21): Euro zone business growth slowed sharply this month as demand fell for the first time since February, a survey showed, with the bloc's services sector showing signs of weakness and a worsening slump in manufacturing.
This comes after the European Central Bank (ECB) implemented its widely reported interest rate cut earlier this month. Reuters Polls call for two more cuts this year.
The preliminary HCOB composite purchasing managers' index compiled by S&P Global fell to 50.8 this month from 52.2 in May. The decline was due to Reuters The poll predicted a rise to 52.5, approaching the 50 mark that separates growth from contraction.
“The sharp fall in the euro zone composite PMI in June suggests that a robust recovery in the euro zone economy is not yet confirmed,” Franziska Palmas of Capital Economics said.
The overall new business index fell to 49.2 from 51.6, the lowest level in four months.
In Germany, Europe's largest economy, the recovery in business activity over the past two months slowed in June as weakness in manufacturing dragged down a stronger services sector, the PMI showed.
Election tensions
France's services sector contracted more than expected this month, dragged down by weak demand and financial market turmoil as the euro zone's second-largest economy heads to early parliamentary elections.
Marine Le Pen's far-right National Rally party is expected to lead the race ahead of the left-wing Popular Front and President Emmanuel Macron's centrist party, according to three opinion polls published on Thursday.
As far-right and far-left parties gain strength, investors are beginning to consider the risk of a fiscal crisis at the heart of the euro zone.
In Britain, which sits outside the European Union and faces a voting day next month, business expanded at its slowest pace since last year's recession as some companies put off big decisions until after the July 4 general election.
Opinion polls suggest Keir Starmer's Labour party is on track to return to power for the first time since 2010, with his Conservative party heading for a historic defeat after Chancellor Rishi Sunak unexpectedly called an early election last month.
Three opinion polls this week projected a record defeat for Mr Sunak's Conservative Party and predicted a comfortable majority for Labour.
Separate data released on Friday showed British retail sales recovered last month after heavy rains kept shoppers away in April.
ECB action
The PMI for the monetary union's main industry, services, fell to 52.6 from 53.2. Reuters The poll predicted a rise to 53.5.
But inflationary pressures have eased, strengthening the case for the ECB to cut interest rates further this year. The services output price index fell to 53.7 from 54.2, the lowest in more than three years.
“Surveys show that price pressures have eased, which supports our view of a benign economic environment in line with expectations of very cautious monetary easing from the ECB,” said Bert Collin of ING.
Manufacturing activity has been declining for nearly two years, reversing recent signs of a recovery, as the manufacturing PMI fell to a six-month low of 45.6 from 47.3. Reuters The poll had predicted a rise to 47.9.
The index measuring production plummeted to 46.0 from 49.3.
The downturn has forced factories to cut staff for 13 consecutive months.
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