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Euro-Area Survey Shows Weakening as French Woes Worsen: Economy

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June 23 (Bloomberg) -- Euro-area manufacturing and services activity weakened in June amid a further slowdown in France’s economy, underscoring the fragility of the recovery in the 18-nation region.

A Purchasing Managers Index for both industries slipped to 52.8 in June from 53.5, Markit Economics said today. That’s the 12th month the gauge has exceeded 50, the mark that signals expansion. Economists predicted a reading of 53.4, according to the median of 25 estimates in a Bloomberg News survey. A measure of Chinese manufacturing rose to a seven-month high.

The euro area is struggling to sustain a recovery that received a bleak assessment from the International Monetary Fund on June 20. Earlier this month, the European Central Bank introduced a negative deposit rate, announced targeted loans to stimulate lending and held out the prospect of asset purchases to stoke growth and inflation in the region.

“The pace of recovery is slowing down,” said Martin van Vliet, senior economist at ING Groep NV in Amsterdam. “The further weakening of the PMI vindicates the ECB’s recent decision to implement further monetary easing.”

The euro dropped 0.1 percent today and traded at $1.3582 at 10:55 a.m. Frankfurt time. The Stoxx Europe 600 Index is down 0.6 percent at 346.15.

Chinese Manufacturing

In China, a preliminary factory PMI from HSBC Holdings Plc and Markit rose to 50.8, exceeding the 49.7 median estimate of analysts surveyed by Bloomberg News, and a final reading of 49.4 in May.

The euro area’s manufacturing gauge fell to 51.9 in June after 52.2 in May, and the measure for services eased to 52.8 from 53.2.

“Hopefully the recent stimulus measures from the ECB will help revive growth again, something which may already be evident as the survey saw the largest increase in inflows of new business for three years in June,” said Chris Williamson, chief economist at Markit in London. “But a concern is that a second consecutive monthly fall in the index signals that the euro-zone recovery is losing momentum.”

Data are consistent with growth of at least 0.4 percent in the current quarter, twice as much as the previous three months, Williamson said. While France “appears to be entering a renewed downturn” and Germany is set to expand by 0.7 percent, quarterly growth in the rest of the region will be the strongest in almost seven years, he said.

Germany, France

A German manufacturing gauge rose to 52.4 in June from 52.3, while the French index dropped to 47.8 from 49.6.

The euro area recovery “is neither robust nor sufficiently strong,” the IMF said last week, noting that output is still below pre-crisis levels, unemployment at 11.7 percent “unacceptably high” and inflation “worryingly low.”

Consumer-price growth in the euro area slowed to 0.5 percent in May, matching the weakest level in more than four years. The ECB, which aims to keep inflation just below 2 percent, cut its forecasts earlier this month, predicting an average of 0.7 percent this year, 1.1 percent in 2015 and 1.4 percent in 2016.

ECB President Mario Draghi indicated in an interview published in Dutch newspaper De Telegraaf on June 21 that interest rates will probably remain low for at least another 2 1/2 years. Vice President Victor Constancio signaled last week that large-scale asset purchases are the next step policy makers are prepared to take if the inflation outlook worsens.

Policy makers will buy asset-backed securities within a year, according to more than three-quarters of respondents in the Bloomberg Monthly Survey. While most economists said interest rates will stay at present levels through at least 2016, they are split on whether the ECB will undertake broad-based quantitative easing.

To contact the reporters on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net; Alessandro Speciale in Frankfurt at aspeciale@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Jana Randow at jrandow@bloomberg.net Jana Randow

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