Euro zone factory growth at 15-month low in May, outlook subdued

By Jonathan Cable

LONDON (Reuters) - Euro zone factory growth slowed to a 15-month low last month, hampered by extra holidays, and forward-looking indicators suggest it will at best remain subdued in coming months, a business survey showed.

After peaking at the turn of the year, growth has weakened across the bloc - although it remains relatively strong, giving the European Central Bank room to move away from its ultra-easy policy this year.

The ECB will finish its stimulus programme by the end of 2018, according to a Reuters poll of economists last month, although nearly half of those surveyed said it was not in control of inflation, which had remained stubbornly below target

But prices in the bloc rose to a faster-than-expected 1.9 percent last month from a year earlier, official data showed on Thursday, pretty much spot on the ECB's target.

Higher prices appear to have hurt demand, and IHS Markit's May final manufacturing Purchasing Managers' Index for the bloc slipped for a fifth month, falling to a 15-month low of 55.5 from April's 56.2, in line with a flash reading. Anything over 50 indicates growth.

An index measuring output, which feeds into a composite PMI due on Tuesday and is considered a good guide to economic health, fell to an 18-month low of 54.8 from 56.2.

"Some of the weakness may have been related to a higher than usual number of holidays during the month, but risks appear tilted towards growth remaining subdued or even cooling further in coming months," said Chris Williamson, chief business economist at IHS Markit.

"There are signs that the soft patch has further to run."

New orders growth was at a 19-month low, hiring rates were at a 14-month low, while backlogs of work were built up at the slowest rate since September 2016.

This all dampened confidence among factory managers. The future output index fell to a 20-month low of 62.2 from 64.4.