Eurozone business slowdown suggests best days may be over

London

EUROZONE economic growth slowed much more sharply than expected this month, a business survey showed, which along with weaker inflation has intensified concerns there will be no return to the bloc's recent boom times.

The European Central Bank will end its asset purchase programme this year and hike interest rates in 2019, a Reuters poll found last month, although policymakers may be concerned to see inflation easing along with growth.

While the expansion still remained relatively strong, growth slowed to a 20-month low in the bloc's largest economy, Germany, and the lowest in a year in a half in No 2 economy France, according to the latest IHS Markit purchasing managers' surveys.

French unemployment also rose in the first three months of 2018, confounding economists' expectations for a decline, according to separate official data.

The euro fell to a six-month low after the German PMI data, which are released before the eurozone numbers, raised concerns a slowdown in Europe's biggest economy in recent months was more widespread than previously thought.

"Contemplating the eurozone's growth perspectives we, unfortunately, might have to refer to the famous Looney Tunes catchphrase 'That's all folks!'," noted Peter Vanden Houte, an economist at ING.

The Euro Zone Composite Flash Purchasing Managers' Index (PMI), seen as a good guide to economic activity, sank in May to an 18-month low of 54.1 from 55.1, below all forecasts in a Reuters poll which predicted a dip to 55.0. Figures above 50.0 in the PMIs suggest expansion.

Having outpaced its peers in 2017, expanding at record levels at the turn of the year, eurozone growth has steadily weakened. Forward-looking indicators in the PMIs also deteriorated, suggesting no imminent bounce-back.

"May's fall in the eurozone PMI yet again partly reflected temporary factors, but the continued softness of the surveys in Q2 is certainly a concern. The declines in the forward-looking components are somewhat worrying," said Jessica Hinds at Capital Economics.

HIS Markit said the PMI, alongside the April reading, pointed to second quarter growth of 0.4 per cent, weaker than the 0.6 per cent prediction in an April Reuters poll.

A composite output price index fell to an eight-month low of 53.0 from 53.4. Eurozone inflation slowed to 1.2 per cent in April, official data showed last week, moving further away from the ECB's two per cent target ceiling.

Despite those easing price pressures, a PMI covering the bloc's dominant service industry slumped to 53.9 from 54.7, missing expectations for a gentle slide to 54.6. That was its lowest reading since the start of 2017 and below all poll forecasts.

With new business growth slowing, and firms building up backlogs of work at a slower pace, optimism fell to a nine-month low. That sub-index fell to 64.4 from 66.2 in April. REUTERS