Euro zone business growth slowed in July, optimism fading: PMI

By Jonathan Cable

LONDON (Reuters) - Euro zone business growth was sluggish at the start of the third quarter as expected, hampered by a drop in new orders that sapped private-sector optimism, a survey showed on Friday.

While the pace of growth was subdued it remained fairly robust and so is unlikely to alter the thinking of policymakers at the European Central Bank, who last week reaffirmed plans to end a 2.6 trillion euro stimulus program.

IHS Markit's Euro Zone Composite Final Purchasing Managers' Index (PMI), seen as a good guide to economic health, fell in July to 54.3 from June's 54.9, matching an earlier preliminary estimate. Anything above 50 indicates growth.

"The final PMI numbers confirm the euro area economy started quarter three on a softer footing," said Rob Dobson, a director at IHS Markit.

"The outlook seems to be turning into a straight choice between the upturn being sustained at its current subdued pace or rising headwinds reining in growth further during the months ahead. On this front, downside risks are more prevalent."

A sub-index measuring new orders fell to its second lowest level since the start of last year. And in a sign that firms see little chance of a turnaround anytime soon, the future output index, which measures optimism, fell to a 20-month low of 63.1.

In another ill omen, firms across the bloc increased headcount at a weaker pace last month and built up backlogs of work at the shallowest rate in 1-1/2 years.

Dobson said the PMI pointed to third-quarter growth of around 0.3 percent, little changed from a softer-than-expected expansion of 0.3 percent signaled by official Eurostat data for the second quarter but weaker than the 0.5 percent predicted in a Reuters poll. [ECILT/EU]

July's manufacturing PMI, released on Wednesday, showed factory growth remained subdued as worries about trade tensions took a toll. Services firms also suffered a slowdown in growth.

The final PMI for the bloc's dominant services industry fell to 54.2 from June's 55.2, below an earlier flash reading of 54.4.

Services firms suffered a slowdown in new work, with the sub-index falling to 54.1 from 54.9, the second-lowest reading since the start of 2017.

(Reporting by Jonathan Cable; Editing by Hugh Lawson)

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