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New figures reveal 'disappointing' stagnation in eurozone economies

MANUFACTURERS in the eurozone drew in their horns this month as the European Central Bank raised interest rates to fight inflation, new surveys showed yesterday.

Preliminary purchasing managers' surveys pointed to almost stagnant growth in eurozone countries other than France and Germany.

"As expected, the gap between the core and the periphery shows no sign of narrowing. We expect it to persist throughout this year and next," said Marie Diron, an economist at Ernst & Young.

Most European economies roared ahead in the first few months of the year as economies rebounded from the recession. This in turn helped the Irish economy which is widely predicted to eke out some sort of growth this year thanks to exports. The ECB has since hiked rates to choke off inflation which is crimping growth.

"Fiscal tightening is only starting to hit the eurozone economy," Ms Diron added.

The new orders index for eurozone manufacturers fell this month to its lowest level since September, despite the competitive advantage of a recent weakening in the euro.

"Growth slowed in France and Germany but it is still far outpacing what we have seen in the rest of the region where growth has slowed to near stagnation. That is a really disappointing signal," said Chris Williamson of Markit, the company that compiles the figures.

The eurozone's services PMI fell to its lowest level since December although it remained above the crucial 50 level (which shows growth) for the 21st straight month.

The flash manufacturing PMI fell to 54.8 in May from 58 in April, much lower than expectations in a Reuters poll, which pointed towards 57.4.

Separate data from Germany, Europe's largest economy, showed the pace of growth in its manufacturing sector slowed considerably from April's near record high while its service sector PMI also dropped.

Growth in the French service sector slowed only marginally from last month's more than 10-year high but its manufacturing sector grew at its slowest pace in four months.

Optimism among eurozone service sector firms was at its lowest since July 2009.

Despite this, firms continued to take on more workers, albeit at a slower pace than last month, with the composite employment index dipping to 52.7 from last month's 53.1.

The official eurozone unemployment rate held steady at 9.9pc in March.

The figures also suggest that prices did not rise so steeply this month.

"One good piece of news was some waning of price pressures, with both the composite output and input price indexes declining in May, though they remain at relatively high levels," said Nick Kounis of ABN AMRO.

Irish Independent