LONDON (Reuters) – The euro zone economy trod water again last month as a weak expansion in the bloc’s dominant services industry was overshadowed by a long-running downturn in manufacturing, a survey showed.
HCOB’s final composite Purchasing Managers’ Index for the bloc, compiled by S&P Global and seen as a good guide to overall economic health, held steady at January’s 50.2.
That matched a preliminary estimate and was only a tad above the 50 mark separating contraction from growth.
“The euro zone economy has barely grown for two months in a row now, as the mild growth in the services sector is almost fully eaten up by the recession in the manufacturing sector,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
A PMI for the services sector dropped to a three-month low of 50.6 from 51.3. The downturn in manufacturing showed further signs of easing last month, its PMI released on Monday showed.
Suggesting it could be a while before the currency union sees a sharp uptick, overall demand fell at a faster rate. The composite new business subindex fell to 49.0 from 49.3.
Services inflationary pressures – closely watched by the European Central Bank – remained high. Prices charged rose at the fastest pace in 10 months with the index rising to 54.7 from 53.9.
“Ahead of the next ECB meeting, all eyes are on the wage-driven input cost increases given the central bank’s emphasis on services inflation,” de la Rubia said.
“With no sign of input cost inflation abating, it is understandable that there are some voices in the ECB who would like to discuss a pause in rate cuts at the next meeting.”
The central bank will cut its deposit rate on Thursday, all 82 economists polled by Reuters said. Medians in the poll indicated two further cuts by mid-June but beyond that was unclear.
(Reporting by Jonathan Cable; Editing by Hugh Lawson)
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