Euro-Area Economic Growth Marred by French Services Slowdown

  • Composite PMI rose to 53.3 in October, missing flash estimate
  • Boost in hiring, confidence to bolster recovery: IHS Markit

Economic momentum in the euro area accelerated less than forecast in October amid weaker growth in French services, highlighting the risks to the region’s recovery.

A Purchasing Managers’ Index for manufacturing and services rose to 53.3, up from 52.6 in September, but below an Oct. 24 reading of 53.7, IHS Markit said on Friday. A gauge for service activity missed an earlier estimate by 0.7 point, reflecting a slowdown in France and smaller euro-area nations.

“The weaker-than-previously indicated expansion in October raises doubts about whether the euro zone is breaking out of the sluggish growth phase seen throughout much of this year,” said Chris Williamson, chief business economist at IHS Markit. However, high order backlogs and a boost in hiring and business confidence suggest “that growth will pick up as we move closer toward the end of the year.”

The 19-nation currency bloc has seen a slow but steady recovery as the European Central Bank supports the economy with unprecedented stimulus. Still, headwinds including the U.K.’s vote to leave the European Union and several upcoming elections could test the region’s resilience. Several member countries are already feeling the crunch.

“The economic data out of the euro-zone have failed to show any signs of confidence,” said Naeem Aslam, chief market analyst at Think Markets U.K. Ltd. in London. “The only country which has beaten the forecast is Germany -- no surprise. France, the problem child of the euro zone, failed to impress once again.”

Germany, the region’s largest economy, bolstered euro-area growth, with output rising at the fastest pace in three months and the rate of job creation at its highest in more than five years. Higher staff costs and oil prices continued to drive up inflationary pressures in the region, yet failed to translate into higher average output charges, according to the report.

Italy, where growth has almost ground to a halt amid growing political uncertainty “is a major concern,” Williamson said. “Similarly, while Ireland’s PMI remains consistent with GDP rising at a quarterly rate approaching 1 percent, that’s down sharply from earlier in the year as worries mount about the potential impact of Brexit.”

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