Euro zone business growth slowed again in April but still strong - PMI

By Jonathan Cable

Businesses across the euro zone strolled into the second quarter, maintaining a still-solid but more modest growth rate than around the turn of the year, a survey showed on Monday.

Having peaked in January, growth has steadily slowed in the bloc as a strong currency and fears that a trade spat between China and the United States could deepen affects demand and confidence.

IHS Markit's composite flash Purchasing Managers' Index (PMI) for the euro zone, seen as a good guide to economic health, held steady in April at March's 14-month low of 55.2, defying a Reuters poll forecast of a fall to 54.9.

Earlier data showed improvements in Germany and France, the bloc's two biggest economies and the only ones to publish flash readings.

"It's a good reading, it's still encouraging," said Chris Williamson, chief business economist at IHS Markit, of the euro zone numbers. He said the PMI pointed to quarterly GDP growth of 0.6 percent, matching the prediction in a Reuters poll.

"It's very much suggestive of the ECB being in territory where it should be thinking about unwinding stimulus -- and certainly not adding to it."

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

The ECB's rate-setting Governing Council meets on Thursday.

Inflation in the bloc was just 1.3 percent in March, a long way from the ECB's 2 percent target, and this month the output prices PMI fell to 53.2 from 53.5.

That easing price pressure helped a PMI covering the bloc's dominant services industry to confound expectations and nudge up to 55.0 from 54.9 in March. It was expected to be 54.6.

To meet the still strong demand, firms took on staff at the fastest rate since the tail-end of 2007. The employment sub-index jumped to 55.0 from 54.1.

Manufacturing growth waned in April, however, with the factories PMI falling to a 14-month low of 56.0 from 56.6, just shy of a median forecast for 56.1. An index measuring output which feeds into the composite PMI, dipped to a 17-month low of 55.8 from 55.9.

Factories are bearing the brunt of a strong euro, up well over 2 percent against the dollar so far this year and expected to strengthen further, and new export order growth dwindled.

Its sub-index, which includes trade between member countries, fell to 53.7 from 54.8, an 18-month low.

"This is where you are getting conflicting signals. Order book inflows are down but firms are still hiring in good numbers. There is a strong indication the stronger euro is hurting exporters," Williamson said.