Eurozone economy has slowed sharply, business survey shows

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The eurozone economy has slowed sharply, in line with a carefully watched business survey that indicated that current progress within the dominant companies sector is stalling and worth pressures are cooling.

The benchmark buying managers’ index, a measure of exercise in manufacturing and companies, fell to a five-month low of fifty.3 on Friday’s information, down from 52.8 within the earlier month. It was under the 52.5 studying forecast by economists in a Reuters ballot.

By dropping in direction of the 50 mark that separates contraction from enlargement, the figures damp hopes of an financial rebound within the 20-country single foreign money zone after two quarters of gentle contraction.

“This is a severe slowdown,” stated Carsten Brzeski, an economist at Dutch financial institution ING. “It shows the ECB forecasts were utterly over-optimistic. We are clearly heading for another weak quarter, with a possible flirtation with recession again.”

The European Central Bank had forecast gross home product within the bloc would develop at 0.9 per cent this yr.

Economists stated the flash PMI information might make ECB rate-setters extra cautious about additional rate of interest rises past an increase the central financial institution says is “very likely” in July.

Investors pared again bets of one other enhance in September. Germany’s two-year authorities bond yield fell 13 foundation factors to three.09 per cent, whereas the euro fell 0.6 per cent towards the greenback to $1.089.

European shares fell following the info, bringing to an finish what is about to be their worst week since March. The region-wide Stoxx 600 fell 0.4 per cent, Germany’s Dax was 1.1 per cent decrease and London’s FTSE 100 misplaced 0.5 per cent. The Stoxx 600 has declined 2.9 per cent this week.

The signal of a weakening economy got here towards the backdrop of hawkish central financial institution selections earlier within the week, as Switzerland, Norway and the UK raised their benchmark charges to deal with stubbornly excessive inflation.

“These data aren’t pretty,” Claus Vistesen, an economist at analysis group Pantheon Macroeconomics stated of the HCOB PMI figures, including that the figures had been per eurozone progress remaining “subdued” within the second and third quarters of this yr.

The largest shock within the PMI information was the sharp slowdown in companies, which has been one of many few optimistic areas of the eurozone’s economy for a lot of this yr.

The slowdown was particularly sharp in France, the place exercise ranges amongst companies corporations contracted for the primary time because the begin of the yr.

This contrasted with the UK companies sector, which slowed much less, however bolstered fears that inflation is extra persistent than the Bank of England had hoped.

Eurozone enter prices for producers fell at their quickest fee since July 2009, suggesting the current decline within the area’s industrial producer costs, which fell 3.2 per cent between March and April, is prone to proceed.

But enter prices continued to rise for companies corporations at nicely above the historic common tempo.

Workers’ wages within the bloc elevated greater than 5 per cent within the yr to the primary quarter. Unemployment fell to a report low of 6.5 per cent in April, which ECB officers concern is prone to maintain companies inflation excessive.

Eurozone inflation fell to six.1 per cent in May. New information subsequent week is anticipated to indicate an additional decline to five.7 per cent.

But the ECB — which targets headline inflation of two per cent — is prone to deal with the core fee. This measure, which strips out power and meals, is anticipated to rise from 5.3 per cent in May.

The PMIs additionally confirmed corporations throughout the eurozone had develop into way more gloomy about their prospects.

Weaker order flows are beginning to hit demand for employees, with employment progress slowing in June for the second consecutive month.

Separately, German home costs fell at a report annual fee of 6.8 per cent within the first quarter of this yr, as greater borrowing prices, inflation and weaker financial progress took their toll on Europe’s largest property market.

Why does the buying managers’ index matter?

Based on a month-to-month survey of senior executives at a whole lot of corporations in every nation, the buying managers’ index shows if output, employment, orders, provider supply instances and shares have elevated, decreased or been flat because the earlier month.

More well timed than laborious financial information, the PMI survey is carefully watched by central bankers and analysts for early indicators that an economy is altering course. Readings above 50 point out that companies are seeing exercise rise, whereas readings under 50 counsel the other.