Euro-area services industries aid bloc's economic growth in May as manufacturing slows down; Markit reports PMI of 53.9, little changed from earlier 54 reading, says bloc's growth could accelerate to 0.5% in Q2, fastest since early 2011

, May 22, 2014 (press release) – Services industries in the euro area helped to keep momentum in the economy this month as a surge in growth offset a slowdown at manufacturers. Markit Economics said its composite Purchasing Managers’ Index was at 53.9, little changed from the reading of 54 in May and in line with the median estimate of economists. While a factory gauge slipped more than anticipated, a measure of services rose to a 35-month high. Markit said economic growth may accelerate to 0.5 percent this quarter, the fastest since early 2011.

The upbeat assessment is largely thanks to Germany, the euro area’s biggest economy and the driver of its recovery. Other countries, such as France, continue to struggle, while low inflation has prompted European Central Bank president Mario Draghi to signal he may add monetary stimulus in early June.

Markit’s composite report showed that prices charged by companies fell again in May. Euro-area inflation was at 0.7 percent in April, less than half the ECB’s goal.

“A slight easing in the euro area’s rate of growth was seen in May but doesn’t change the picture of a region that’s enjoying its best spell of growth for three years,” said Chris Williamson, chief economist at Markit in London. “Deflationary pressures remain a major issue, however.”


Weak Recovery



The ECB’s Governing Council will announce its next interest-rate decision on June 5 in Frankfurt, with 90 percent of economists in a Bloomberg Monthly Survey expecting it to add stimulus. The benchmark interest rate currently stands at a record low of 0.25 percent and the deposit rate at zero percent.

As evidence’s of bloc’s weak recovery, it eked out growth of just 0.2 percent last quarter. France unexpectedly stalled and economies from Italy to the Netherlands shrank, while Germany accelerated. The region’s unemployment rate remains high, clocking in at 11.8 percent for in March, just below last year’s record 12 percent.

The divergence between Germany and France was further highlighted today, with Markit’s data showing that both manufacturing and services in France shrank this month. In Germany, a composite index of the industries held at 56.1, close to the highest level in three years.

“Of greatest concern is France, living up to its moniker of sick man of Europe, as Germany continues to enjoy robust growth and the rest of the region experiences its best expansion since mid-2007,” Williamson said.


--With assistance from Mark Evans and Harumi Ichikura in London and Kristian Siedenburg in Vienna.


To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net Fergal O’Brien, Emma Charlton

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