Euro zone growth remains lethargic as factories shut for summer - PMI

Euro zone growth remains lethargic as factories shut for summer - PMI
FILE PHOTO: A worker assembles a new Audi at the production line of the German car manufacturer's plant in Ingolstadt, Germany, March 14, 2018. REUTERS/Michael Dalder -
Michael Dalder(Reuters)
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By Jonathan Cable

LONDON, (Reuters) - Euro zone businesses growth picked up a touch this month, although not as much as predicted, with the prospects of a growing trade war weighing on the outlook, a survey showed on Thursday.

But survey compiler IHS Markit cautioned the August data were based on a much smaller sample size, particularly amongst manufacturers where there were about half the normal number of respondents for some countries.

"Always treat August data with some caution for the euro zone, especially in core countries such as France, Italy and Spain where factories go through lengthy closures. Less so in Germany," said Chris Williamson, chief business economist at IHS Markit.

So although growth remained somewhat sluggish, August's results are unlikely to upset policymakers at the European Central Bank who intend to close their 2.6 trillion euro asset purchase programme by year-end.

IHS Markit's Euro Zone Composite Flash Purchasing Managers' Index (PMI), seen as a good gauge of economic health, nudged up in August to 54.4 from 54.3, coming in just below a median forecast in a Reuters poll for 54.5. Anything above 50 indicates growth.

Suggesting businesses were not hopeful there would be an acceleration anytime soon, the future output index - which measures optimism - sank to a near two-year low of 61.3 from 63.1.

"We have a mix of weaker order book growth, increasing concerns about the political environment and trade wars and even worries about the financial market impact of what is going on," Williamson said.

This year and next the euro zone economy will only muddle through, with steady but modest growth in a slowdown from 2017, according to economists in a Reuters poll on Wednesday, which showed a majority expecting a brewing U.S.-led trade war to hold back expansion.

Williamson said the PMIs indicate GDP growth this quarter at around 0.4 percent, matching a forecast in the Reuters poll.

There was also a modest revival among firms operating in the bloc's dominant service industry. The services PMI rose to 54.4 from July's 54.2, matching expectations in a Reuters poll but a far cry from levels seen at the turn of the year.

They did increase headcount at the fastest rate since October 2007 - before the financial crisis really hit - but the employment index tends to be a lagging index.

It jumped to 55.1 from 54.6.

Factory growth decelerated much faster than was expected. The manufacturing PMI fell to a 21-month low of 54.6 from July's 55.1, matching the lowest forecast in a Reuters poll.

An index measuring output, which feeds into the composite PMI, nudged up to 54.5 from 54.4.

In another sign of scant optimism, factories kept their stocks of purchases - the amount of raw materials they hold - at the same level as in July. The sub-index was bang on the break-even 50 mark, down from 52.0 and its lowest in a year.

(Editing by Toby Chopra)

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