May euro zone business growth unexpectedly slowed to 16-month low - PMI

By Jonathan Cable

LONDON, (Reuters) - Euro zone business growth held broadly steady in May, a survey published on Monday showed, the latest evidence to suggest a strong acceleration in growth in the first three months of the year was only temporary.

Markit's flash Composite Purchasing Managers' Index, one of the first growth indicators in a month, edged down to 52.9 from April's 53.0, essentially stable but still the lowest since the start of 2015. A Reuters poll had predicted a tick up to 53.2.

"This is an all-round disappointing picture. There are some pockets of growth but producers across the region are

struggling," said Chris Williamson, chief economist at Markit.

While the headline index was above the 50 mark that separates growth from contraction, the index that measures

prices businesses charge remained below it at 49.0, although that was an increase from last month's 48.3.

This may concern policymakers at the European Central Bank who have been battling to get inflation up to their 2 percent target ceiling. Consumer prices fell 0.2 percent in April, despite the Bank's ultra-loose monetary policy.

Even with price discounting, new order growth slowed and there was no acceleration in activity in the bloc's dominant service industry. A Reuters poll had predicted an increase to 53.3 but the PMI held steady at April's 53.1.

The manufacturing PMI fell to 51.5 from 51.7, missing the poll's median forecast for 51.9, while an index measuring output dropped to 52.4 from 52.6.

Details in the data suggest there may be little or no improvement in June. Optimism among service firms fell to a

10-month low, with the sub-index plummeting to 61.7 from 64.5, and factories slowed recruitment.

The manufacturing employment index fell to 51.4 from 51.6. "There is lethargy there and no real signs of that picking up," Williamson said, adding that the PMI pointed to quarterly GDP growth of 0.3 percent, in line with a Reuters poll published earlier this month.

(Editing by Catherine Evans)