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Euro zone business growth grinds to a halt as services struggle - flash PMIs

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By Reuters

LONDON (Reuters) – Euro zone business growth almost ground to a halt this month as activity in the bloc’s dominant services industry increased at a much weaker pace than expected and among manufacturers it contracted again, a survey showed on Friday.

IHS Markit’s flash composite Purchasing Managers’ Index, seen as a reliable guide to economic health, was 50.3, down from October’s 50.6 and moving towards the 50 mark separating growth from contraction.

That was below all expectations in a Reuters poll which had predicted 50.9 and only just shy of a more than six-year low reading in September.

November’s PMI points to GDP growth of 0.1% this quarter, IHS Markit said, slower than the 0.2% last quarter and the 0.2% prediction in a Reuters poll last week. [ECILT/EU]

Worryingly for policymakers at the European Central Bank, who have so far failed to stoke demand and inflation, new business fell for a third month. The sub-index was 49.7, albeit just above October’s 49.6.

A PMI for the bloc’s dominant service industry dropped to a 10-month low of 51.5 from 52.2. That was also below all expectations in a Reuters poll in which the median forecast was for 52.5.

Manufacturers produced slightly more positive news, but their PMI showed activity contracted for a 10th month. The factory PMI rose to 46.6 from 45.9, above the median forecast for 46.4.

An index measuring output, which feeds into the composite PMI, rose to 47.1 from 46.6. That contraction was despite factories cutting the prices of their goods for a fifth month.

Once more, with demand falling a chunk of that production was derived from completing backlogs of work and factories again reduced headcount and cut back on purchases of raw materials.

Also probably of concern for policymakers, services firms likewise filled old orders faster than new ones came in and curtailed hiring, suggesting there won’t be a turnaround anytime soon.

That meant optimism dwindled to its lowest since mid-2013. The services business expectations index dropped to 57.0 from 57.4.

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(Reporting by Jonathan Cable; Editing by Hugh Lawson)