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Euro-Area economy stays in lower gear as order growth weakens

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Economic momentum in the euro area kept a steady pace in April after softening earlier in the year, in a sign that growth in the region is set to continue albeit at a slower pace.

[FRANKFURT] Economic momentum in the euro area kept a steady pace in April after softening earlier in the year, in a sign that growth in the region is set to continue albeit at a slower pace.

A composite Purchasing Managers' Index remained unchanged at 55.2, IHS Markit said on Monday. Economists surveyed by Bloomberg predicted a decline to 54.8. While activity in services picked up, growth in manufacturing slowed to the weakest in more than a year.

"The euro-zone economy remained stuck in a lower gear in April," said Chris Williamson, chief business economist at IHS Markit. "Growth has downshifted markedly since the peak at the start of the year, but importantly still remains robust." The report follows a recent spate of weaker-than-expected economic data which, together with risks surrounding global trade, have caused some European Central Bank officials to advocate prudence in normalizing monetary stimulus. Policy makers are currently expected to wind down their bond-buying program by the end of the year, though no action is expected when they convene in Frankfurt this week.

IHS Markit said slower growth in new orders, as well as weakened optimism about the business outlook, suggests output could decelerate further in coming months. It also noted that price pressures eased and that a stronger euro damped export demand.

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Mr Williamson said the observed slowdown is "neither surprising nor alarming," adding that April data signal the economy is growing at a quarterly rate of 0.6 per cent.

"Strong growth as that seen at the start of the year rarely persists for long, not least because supply fails to keep up with demand," he said. "With recent months seeing record delivery delays for inputs to factories and growing skill shortages, output is clearly being constrained."

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