Euro-Area Economy Extends Modest Growth With Help From Services

(Bloomberg) -- Strength among service providers helped economic activity in the euro area expand at a modest pace in May, though signs of a broader rebound continue to be elusive.

A composite Purchasing Managers’ Index came in at 51.8, above the 51.6 initial estimate and higher than April’s reading. A gauge for the service sector improved, driving growth as the bloc struggles to escape from manufacturing weakness that has lasted more than a year.

The PMI report also revealed a continuing dilemma for firms, which are facing higher costs but unable to fully pass these on through price increases. A measure of output-price inflation slipped to the lowest since November 2016.

Core euro-area price growth -- which strips out volatile food and energy prices - rose only 0.8% in May, a report showed on Tuesday.

“Companies are having to increasingly compete on price to sustain sales growth, dampening inflationary pressures,” said Chris Williamson, chief business economist at IHS Markit, which compiles the report.

The figures add to a mixed picture, with economic confidence finally starting to turn up but inflation pressures still muted. European Central Bank officials will meet to set policy on June 6 and review economic projections that will show whether previous expectations of a rebound in the second half of 2019 are still intact.

“There seems little prospect of any immediate improvement -- new orders barely rose in May, painting one of the gloomiest pictures of demand seen over the past six years,” William said.

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