Euro zone business recovery slows sharply in June, PMI shows By Reuters

LONDON (Reuters) – Euro zone business growth slowed sharply this month as demand fell for the first time since February, a survey found, with the bloc’s services industry showing some signs of weakening while the downturn in manufacturing took a turn for the worse.

That was despite the European Central Bank delivering a widely telegraphed cut to interest rates earlier this month and expectations in a Reuters poll for two more reductions this year.

HCOB’s preliminary composite Purchasing Managers’ Index, compiled by S&P Global, sank to 50.8 this month from May’s 52.2, confounding expectations in a Reuters poll for a rise to 52.5.

However, June marked a fourth month above the 50 level separating growth from contraction.

“Is the recovery in the manufacturing sector ending before it began? The services sector continues to keep the euro zone afloat,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.

The overall new business index dropped to a four-month low of 49.2 from 51.6.

A PMI for the currency union’s dominant services industry fell to 52.6 from 53.2. The Reuters poll predicted an uptick to 53.5.

But inflationary pressures eased, strengthening the case for further ECB interest rate cuts this year. The services output prices index declined to 53.7 from 54.2, its lowest reading in just over three years.

“The ECB, which cut interest rates in June, may feel vindicated by prices data which signalled easing pressure in the euro zone’s service sector. However, the HCOB PMI do not provide ammunition for another rate cut in July by the ECB,” de la Rubia added.

Manufacturing activity, in decline for almost two years, reversed recent signs of heading for a recovery. The factory PMI dropped to a six-month low of 45.6 from 47.3. Expectations in the Reuters poll were for a lift to 47.9.

An index measuring output plummeted to 46.0 from 49.3.

That downturn pushed factories to reduce headcount for a thirteenth month. The employment index fell to 47.5 from 47.9.