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Euro Area Shows Signs of Weakening as Surveys Miss Forecasts

Made In Germany
German services and manufacturing activity slowed less than analysts forecast in August, Markit said today. Photographer: Krisztian Bocsi/Bloomberg

Aug. 21 (Bloomberg) -- Euro-area manufacturing and services activity slowed in August, signaling that the economy of the 18-nation region remains vulnerable to weak inflation and rising tensions with Russia.

A Purchasing Managers Index for both industries fell to 52.8 from 53.8 in July, London-based Markit Economics said today. A reading exceeding 50 indicates expansion. Economists predicted a decline to 53.4, according to the median of 20 estimates in a Bloomberg News survey.

While the gauge has signaled growth for more than a year, economic expansion in the euro area unexpectedly halted in the second quarter amid weakness in the region’s three largest economies. With inflation below 1 percent since October, unemployment near record highs and rising political tensions, the European Central Bank unveiled a stimulus package in June that policy makers say will take months to show results.

“If there was a risk of a strong impact from the Russia-Ukraine crisis, this data can be taken as a sign of resilience of the euro-area economy,” said Chiara Corsa, an economist with UniCredit SpA in Milan. Still, data signal “that the slowdown in global trade is hurting growth. This should ring an alarm bell for the outlook in the third quarter,” she said.

The euro traded at $1.3265 at 10:12 a.m. in Frankfurt, little changed from yesterday.

Consumer Prices

Inflation in the euro area slowed to 0.4 percent last month, compared with the ECB’s goal of just below 2 percent. Joblessness declined to 11.5 percent in June, down from a record-high 12 percent last year. The European Union’s statistics office in Luxembourg will release fresh data on Aug. 29.

An index of manufacturing activity in the region fell to a 13-month low of 50.8 from 51.8, according to today’s report, while a gauge of activity in the services industry declined to 53.5 from 54.2. The data point to growth of “only” 0.3 percent to 0.4 percent in the third quarter, said Rob Dobson, a senior economist at Markit.

“The muted rate of expansion and stalling labor-market recovery will keep already watchful eyes on the ECB for any signals that the ground is being softened for further supportive measures,” Dobson said. “However, it is most likely that policy makers will allow recent stimulus efforts to have a greater chance to filter through to the real economy before making any further moves.”

Chinese Manufacturing

A Chinese manufacturing gauge fell more than analysts estimated in August as a credit slowdown and property slump add to risks the world’s second-largest economy will miss its growth target this year. Gross domestic product will increase 7.4 percent this year, according to a Bloomberg News survey.

German GDP shrank 0.2 percent in the three months through June. While the contraction was largely due to a mild winter that shifted production into the first quarter, the Bundesbank warned that a previously anticipated rebound in the second half of the year is not a given.

At the same time, Italy entered its third recession since 2008 after output shrank by 0.1 percent in the first quarter and by 0.2 percent in the April-June period. France registered its second straight quarter of stagnation, with Finance Minister Michel Sapin announcing the country won’t meet its deficit target for 2014.

German services and manufacturing activity slowed less than analysts forecast in August, Markit said today. A gauge showed French manufacturing contracted for a fourth month, while a measure of services growth rose to a five-month high.

The ECB, which currently predicts euro-area GDP growth of 1 percent in 2014 and 1.7 percent in 2015, will publish updated projections for the currency bloc in September.

To contact the reporter on this story: Alessandro Speciale in Frankfurt at aspeciale@bloomberg.net

To contact the editors responsible for this story: Fergal O’Brien at fobrien@bloomberg.net Jana Randow, Paul Gordon

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