Sunday 18 February 2018

Eurozone recovery slow but steady as confidence grows

Manufacturing and services activity still above danger mark

Grainne Gilmore

THE eurozone's economic recovery continued in August but at a slower pace, as consumer confidence hit its highest level in more than two years, official data showed yesterday.

The closely watched 'flash' composite PMI, which measures activity at about 85pc of manufacturing and service businesses across the eurozone, fell back to 56.1 in August from 56.7 in July, but still remained well above the 50 mark that indicates activity is rising.

Economists said the data meant that the eurozone economy was set for 0.7pc growth in the third quarter, down from the bumper 1pc growth recorded in the three months to June.

Martin van Vliet, economist at ING Financial Markets, said: "The eurozone's economic recovery is slowing down, but so far retains significant forward momentum. That is the message."

The eurozone economy is expected to cool next year as the planned fiscal tightening starts to bite.

A separate measure of consumer confidence in the eurozone hit a 27-month high of -11.7 in August, up from -14 in July and confounding economists' expectations that it would remain unchanged.

Across the 27-country European Union, sentiment picked up, from -13.8 to -11.4. But analysts were circumspect about whether the data indicated a resurgence in consumer demand.

"Becoming more confident about the economy is one thing. Opening your purse and increasing spending is another," Mr van Vliet said.

Markit, which compiles the PMI data, said that the upbeat figure also masked a deeper divergence of growth across the region.

Chris Williamson, chief economist at Markit, said: "The robust headline number masks some worrying developments.

"Of greatest concern, the upturn continued to be all too dependent upon France and Germany. Growth in the rest of the euro area slowed to near stagnation."

Germany's services sector expanded at its fastest rate in three years in August and while the growth in manufacturing activity fell to its slowest pace in six years, the reading of 58.2 still signalled sturdy growth.

More detailed data for each eurozone country will be published next week.

Analysts said that the slowdown in eurozone manufacturing activity, which fell to a six-month low of 55, highlighted that the region was not immune to a decline in global demand.

New export orders rose at the slowest pace since January.

Jennifer McKeown, senior European economist at Capital Economics, said: "As fiscal tightening exacerbates the slowdown in exports that has already begun, we still see growth slowing to just 0.5pc next year."

Irish Independent

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