Euro zone business on solid footing in July but firms cut prices - PMI

Thu Jul 24, 2014 4:06am EDT
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By Sumanta Dey

July 24, (Reuters) - The euro zone's private sector expanded at the fastest rate in three months in July, although faster growth in new business was driven mainly by companies cutting prices again, surveys showed on Thursday.

Markit's Composite Purchasing Managers' Index (PMI), based on surveys of thousands of companies across the region and a good early indicator of overall growth, rose to 54.0 in July from 52.8, its highest since April. Any number above 50 indicates expansion.

The services sector across the 18-member bloc performed better than any of the 39 economists polled by Reuters had forecast, while manufacturers also reported a stronger month than suggested by the median Reuters forecast.

Markit said the data suggest quarterly economic growth of 0.4 percent if a similar pace is maintained in August and September.

"There is a very encouraging expansion in the services sector, with Germany growing at its fastest pace in three years and even French companies returning to modest growth," said Chris Williamson, Markit's chief economist.

The rest of the euro zone performed even better, with the largest monthly increase in business activity recorded since August 2007 accompanied by a similar surge in new orders growth.

Yet while euro zone services business expanded at its fastest pace since May 2011 - the PMI rose to 54.4 - firms have now cut prices for 31 months in a row. The sub-index measuring service sector output prices fell to 48.3, despite high raw material costs.

With inflation stuck at 0.5 percent in June, well below the European Central Bank's danger level of 1 percent, that suggests policymakers still face a tough task to thwart the threat of deflation.   Continued...

Customers have a lunch inside a 'Restaumobile' restaurant truck for the start of the operation "Tous au restaurant" (Everyone to the Restaurant) in Paris September 17, 2012. REUTERS/Charles Platiau