Euro zone's business growth remains modest in May, PMI shows

LONDON (Reuters) - Euro zone business growth improved more than expected in May but remained modest, further evidence the expansion early in the year won't be repeated this quarter, a survey showed on Friday.

Markit's final composite Purchasing Managers' Index for the region was 53.1 in May, beating a flash estimate of 52.9 and April's 53.0. It has been above the 50 mark that divides growth from contraction since mid-2013.

"The final PMI numbers for May have come in slightly ahead of the earlier flash readings, but still point to a euro zone economy which seems unable to move out of low gear," said Chris Williamson, chief economist at Markit.

"The survey data are signaling a GDP rise of 0.3 percent in the second quarter, suggesting the growth spurt seen at the start of the year will prove frustratingly short-lived."

Gross domestic product expanded 0.5 percent in the first quarter, figures showed last month. The median forecast in a May Reuters poll agreed with Williamson's prediction [ECILT/EU].

Companies once again cut prices, as they have for most of the past five years. The output price index held stubbornly below the break-even mark, rising to 49.3 from April's 48.3.

That will disappoint the European Central Bank, whose years of ultra-loose monetary policy have failed to get inflation anywhere near its target of close to but less than 2 percent.

Prices actually fell 0.1 percent last month, official data showed.

Discounting failed to have much impact on the bloc's dominant service industry. The services PMI nudged up to 53.3 from the previous month's and flash reading of 53.1.

Squeezing profit margins, input prices rose at the fastest rate since late 2012. That sub-index jumped to 55.6 from 52.7.

Companies attributed higher costs to a firming of certain commodity prices, increased transportation and energy costs and rising staff wages and salaries, Markit said.

(editing by Larry King)

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