Euro-Area Momentum Eases as Best Quarter in Over Six Years Ends

  • Purchasing Managers’ Index falls to 55.7 from 56.8; est. 56.6
  • Gauge for manufacturing rises as services activity slowed

The euro-area economy recorded its fastest expansion in six years in the second quarter even as momentum eased in June due to weakening services activity.

A composite Purchasing Managers’ Index dropped to a five-month low of 55.7, IHS Markit said on Friday. Economists surveyed by Bloomberg predicted the index would ease to 56.6 from 56.8 in May. Manufacturing grew at its steepest pace since 2011, while a gauge for services slipped to a five-month low.

The report comes two weeks after the European Central Bank said risks to the economic outlook were broadly balanced and no longer tilted to the downside. The recovery is broad-based and companies are adding jobs at a brisk pace amid strong optimism about future growth, IHS Markit said.

“Although the PMI data point to some loss of growth momentum in June, the latest reading needs to be looked at in the context of recent elevated levels,” said Chris Williamson, chief business economist at the London-based company. “Despite the June dip, the average expansion in the second quarter has been the strongest for over six years and is historically consistent with gross-domestic-product growth accelerating from 0.6 percent in the first quarter to 0.7 percent.”

Highlighting a conundrum faced by the ECB that accelerating growth is failing to translate into faster inflation, Markit said average prices charged for goods and services increased at the weakest pace in five months in June.

“Despite the rise in employment, the surveys found some evidence of growth being constrained, especially in manufacturing, where supply delays have spiked to the highest in six years in recent months,” Williamson said. “However, with prices for many globally-traded commodities falling, notably oil, price pressures continued to ease in June.”

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