Euro zone business growth slows as ECB meets

Thu Jul 3, 2014 6:39am EDT
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By Jonathan Cable

LONDON (Reuters) - Euro zone firms expanded at their slowest rate in six months in June while cutting the prices they charge, surveys showed, signalling business conditions remain tricky as monetary authorities prepare to give a policy update.

Business activity in France, the euro zone's second-biggest economy, shrank at the fastest rate in four months while in Germany, the largest, the pace of growth slowed.

Service providers also said they cut prices for the 31st month running to drum up business, although not as sharply as in May. With June inflation at just 0.5 percent in the euro zone, the surveys will provide worrying reading for policymakers.

Still, the European Central Bank's Governing Council is not likely to take new policy action at its meeting on Thursday, after cutting interest rates to record lows last month and unveiling a 400-billion-euro loan programme.

It is instead expected to give more details about the bank's existing plans, which the ECB hopes will help entice commercial banks to lend more freely, particularly to small and medium-sized companies on the euro zone periphery.

"We are not expecting any further action from the ECB today, it looks like it has deployed all the policy instruments. (So) we will wait for the actual implementation later in the year," said Tom Rogers at Oxford Economics.

Markit's Composite final June Purchasing Managers' Index (PMI) for the euro zone, based on surveys of thousands of companies across the region and a good indicator of growth, was in line with a preliminary reading of 52.8, down from May's 53.5.

The PMI for the euro zone's dominant service industry fell to 52.8 from 53.2, also in line with an earlier flash reading and above the 50 mark that separates growth from contraction.   Continued...

Coils of steel are seen at the ArcelorMittal Factory in Florange, Eastern France, October 18, 2013.  REUTERS/Vincent Kessler