Euro area's business growth unexpectedly slowed in June; Markit's Composite PMI slowed to 52.8 from May's 53.5, missing forecast of 53.5, as Germany's business activity saw robust growth, France's shrank at fastest rate in four months

Cindy Allen

LONDON , June 23, 2014 (Thomson Reuters Corp.) – * PMI points to 0.4 pct second-quarter GDP growth

* Gap between German and French performance persists

The euro zone's private sector expansion has unexpectedly slowed this month even though companies are still cutting prices to drum up business, a survey showed on Monday.

Germany and France went their separate ways again, with German business activity expanding robustly, albeit at a slower pace than last month, while France's private sector shrank at the fastest rate in four months.

"The overall picture is one of fairly sluggish growth as opposed to any rip-roaring acceleration," said Chris Williamson, Markit's chief economist.

Markit's Composite Purchasing Managers' Index (PMI), based on surveys of thousands of companies across the region and seen as a good indicator of growth, fell to 52.8 from May's 53.5, missing the consensus for 53.5 in a Reuters poll of analysts and matching the lowest forecast.

Readings above 50 indicate expansion, and Williamson said that with a robust recovery evident in periphery countries the data still point to second-quarter economic growth of 0.4 percent.

Germany, Europe's largest economy, was again the driving force although its composite PMI eased to 54.2 from 55.6.

But the French index slumped to 48.0 from 49.3, its lowest reading since February.

"In France the weakness does seem to be quite set in and there is little prospect for any improvement as we move into the second half," Williamson said.

Also somewhat worryingly for the European Central Bank, a composite PMI sub-index measuring output prices held below the 50 mark for the 27th month, coming in at 49.7 as firms kept cutting prices to lure customers despite soaring input costs.

Inflation slowed to just 0.5 percent in May, pushing the ECB to cut interest rates to record lows and offer a new series of long-term loans.

A PMI survey of the bloc's dominant service industry fell to 52.8 from May's near three-year high of 53.2, confounding expectations for a modest rise to 53.3.

However, some of that activity was driven by service firms running down old orders after building up a small surfeit last month. The backlogs of work sub-index fell to 49.6 from 50.1.

The manufacturing PMI also dipped, dropping to 51.9 from 52.2 and below the median forecast for 52.2 in a Reuters poll. The output index, which feeds into the composite PMI, sank to 52.8 from 54.3.

Still, factories took on staff again to meet demand - the employment sub-index nudged down to 50.4 from 50.5, staying in growth territory. Euro zone unemployment dipped marginally to 11.7 percent in April from 11.8 percent.

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