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Euro zone factory malaise impacting services growth: PMI

Euro zone factory malaise impacting services growth: PMI
FILE PHOTO - General view of the skyline of La Defense business district with its Arche behind Paris' landmark, the Arc de Triomphe and the Champs Elysees Avenue in Paris, France, January 13, 2016. REUTERS/Charles Platiau/File Photo -
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Charles Platiau(Reuters)
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LONDON, (Reuters) – Euro zone business growth almost ground to a halt in July as demand dried up, according to a survey which showed a deepening downturn in manufacturing is affecting the bloc’s dominant services industry.

Last month the European Central Bank all but promised to ease policy further as the bloc’s growth outlook deteriorates and Monday’s survey will do little to sway market expectations for loosening.

IHS Markit’s Euro Zone Composite Final Purchasing Managers’ Index (PMI), considered a good measure of overall economic health, dropped to 51.5 in July from June’s 52.2.

That matched a preliminary reading, but in the past month moved closer to the 50 mark separating growth from contraction.

“The service sector continued to sustain the expansion of the overall euro zone economy at the start of the third quarter, but there are signs that the scale of the manufacturing downturn is starting to overwhelm,” said Chris Williamson, chief business economist at IHS Markit.

Figures last week showed factory activity contracted in July at its fastest rate in six years and a PMI for the services industry fell to 53.2 from 53.6 the month before and below the flash reading of 53.3.

Forward-looking indicators suggested there won’t be a turnaround anytime soon and demand for services waned, hit by falling new export business — which includes trade between member countries of the euro zone. The sub-index dropped to 49.2 from 49.4.

That had an effect on broader optimism and a composite future output index fell to 58.8 from 59.2, its lowest reading since October 2014.

With the outlook gloomy — affected by trade war worries, slowing sales growth and Brexit woes — Williamson said the PMI indicated third-quarter economic growth of only around 0.1%, slower than the 0.3% predicted in a Reuters poll last month.

(Reporting by Jonathan Cable; Editing by Catherine Evans)

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