Photographer: Marlene Awaad/Bloomberg

Euro-Area Manufacturing Near Stagnation Signals Slowdown Ahead

Manufacturing in the 19-nation euro area barely grew in May, damping confidence in the strength of the region’s economic recovery, according to Markit Economics.

A Purchasing Managers Index slipped to 51.5 from 51.7, the London-based company said on Wednesday. The reading is in line with a May 23 estimate and just above the 50 threshold that divides expansion from contraction.

The euro area’s economic health will be under review on Thursday when European Central Bank officials gather in Vienna to set monetary policy. After President Mario Draghi announced a fresh round of stimulus in March and the economy expanded at the fastest pace in a year in the first quarter, analysts predict interest rates and asset purchases will remain unchanged this time.

“The disappointing performance of manufacturing adds to suspicions that the pace of euro-zone economic growth in the second quarter has cooled after a surprisingly brisk start to the year,” said Chris Williamson, chief economist at Markit.

New orders expanded at the slowest rate in more than a year, and companies were reluctant to build capacity and hire workers, according to the report. They also cut prices to support sales efforts and remain competitive, Markit said.

Slowing manufacturing activity “confounds expectations that recoveries will accelerate on the back of the ECB stimulus announced earlier in the year,” Williamson said. “Hopes remain pinned on forthcoming corporate bond purchases and new tranches of ultra-cheap bank loans from the ECB providing an extra boost in coming months.”

Manufacturing contracted in France and Greece, with expansions slowing “sharply” in countries such as Spain, Italy and Ireland, he said. The Netherlands and Germany reported accelerating growth.

The ECB is set to publish updated economic projections on Thursday that will offer a glimpse of the region’s economic prospects.

In March, the ECB forecast growth of 1.4 percent this year,

1.7 percent in 2017 and 1.8 percent in 2018, with inflation of

0.1 percent, 1.3 percent and 1.6 percent, respectively.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE