Europe Services, Manufacturing Weaken More Than Forecast

European services and manufacturing growth slowed more than economists forecast in June, adding to signs that the economy is losing some momentum.

A composite index based on a survey of euro-area purchasing managers in both industries fell to 53.6 from 55.8 in May, London-based Markit Economics said today. Economists had forecast a drop to 55.2, the median of 16 estimates in a Bloomberg survey showed. A reading above 50 indicates growth. Output growth weakened to the slowest in almost two years.

European leaders at a meeting in Brussels today are seeking ways to contain a worsening debt crisis, which has prompted concerns that Greece may default on its debt and is clouding growth prospects. In Germany, Europe’s largest economy, investor confidence dropped more than economists forecast in June. Volkswagen AG Chief Executive Officer Martin Winterkorn said on June 17 that global conditions remain “challenging.”

“The big picture is that we expect gross domestic product growth to slow down in the coming quarters,” Aline Schuiling, an economist at ABN Amro Bank NV in Amsterdam, said in an e- mailed note. “From the autumn, it should regain some traction as world trade should pick up somewhat.

The euro was lower against the dollar, trading at $1.4281 at 10:43 a.m. in Frankfurt, down 0.5 percent on the day.

‘Serious Threat’

The euro-area services indicator fell to 54.2 this month from 56 in May, Markit said in the initial estimate. That’s the weakest in six months. The manufacturing gauge decreased to 52 from 54.6 in the previous month, the lowest in 18 months.

The European Central Bank on June 9 lowered its growth forecast for next year to 1.7 percent from 1.8 percent, partly on cooling export growth. In 2011, the economy may expand 1.9 percent, the Frankfurt-based central bank said.

ECB President Jean-Claude Trichet said yesterday that risk signals for the region’s financial stability are flashing ‘‘red,” with the link between debt problems and banks being “the most serious threat.” U.S. Federal Reserve Chairman Ben S. Bernanke has said the impact of a Greek default on lenders in the world’s largest economy would be “very small.”

While Greek Prime Minister George Papandreou yesterday won a vote of confidence, bolstering his new government’s chances of pushing through austerity measures to secure further financial aid, European finance ministers said earlier this week that they would hold off on approving a 12 billion-euro ($17 billion) payment to the country promised for July until passage of the plans to cut the budget deficit and sell state assets.

‘Debt Pile’

European finance chiefs will decide on July 3 whether Greece has met conditions for its next aid payment.

“Most analysts remain skeptical that Greece will be able to reduce its vast public debt pile,” Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin, said in an e-mailed note. “But for now, both markets and European policy makers are willing to give Athens the benefit of the doubt.”

In Europe, companies may struggle to maintain their sales growth as the global economy shows signs of cooling and governments toughen spending cuts. In the U.S., manufacturing in the Philadelphia region unexpectedly contracted in June.

China’s manufacturing probably expanded at the slowest pace in 11 months in June as output growth stalls and export orders drop, a preliminary purchasing managers’ index showed today.

German Growth

German manufacturers such as Volkswagen, Europe’s largest carmaker, have helped drive the region’s expansion by stepping up output and adding shifts to meet Asian export orders. Surging company investment and quickening export growth fueled the euro region’s 0.8 percent expansion in the first quarter. The German economy grew 1.5 percent in that period.

Bayerische Motoren Werke AG, the world’s biggest maker of luxury cars based in Munich, said on June 8 that deliveries jumped 22 percent last month. That’s making it the “most successful May the company has ever reported,” sales chief Ian Robertson said in a statement on that day.

A gauge measuring new business had the weakest gain since November 2009, with an indicator of new export orders for manufactured goods rising “only modestly,” Markit said. Service industries also reported a slowdown in new business and German manufacturing growth weakened, today’s report showed.

Adding to signs of slowdown, European economic confidence weakened in May, industrial orders rose less than economists forecast in April and German investor sentiment dropped to the lowest in 2 1/2 years in June. German executives probably also grew more pessimistic this month, a Bloomberg survey shows. The Ifo institute in Munich will release the figures tomorrow.

Chris Williamson, chief economist at Markit, said euro- region growth probably weakened to 0.6 percent in the current quarter.

“The euro area’s economic growth surge has lost momentum at a worrying rate in the past two months,” Williamson said in the report. “Even German manufacturing, the driving force of the region’s recovery, has seen a marked deterioration in output and new orders growth.”

To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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