Euro Area’s Economic Struggles Persist as Industry Slump Deepens

(Bloomberg) -- Economic growth in the euro area continued to slow in July, weighed down by the worst performance in manufacturing in more than six years.

A Purchasing Managers’ Index dropped to 51.5 from 52.2 in June, IHS Markit said on Wednesday. The decline was worse than economists predicted, and driven by contractions in factory output in Germany and France.

“The manufacturing sector has become an increasing cause for concern,” according to chief business economist Chris Williamson. “Geopolitical worries, Brexit, growing trade frictions and the deteriorating performance of the autos sector in particular have pushed manufacturing into a deeper downturn.”

The 19-nation currency bloc has been stuck in an economic rut for more than a year amid a number of headwinds, and European Central Bank policy makers are already laying the groundwork for fresh monetary support. Economists expect the institution to signal an interest-rate cut this Thursday, and then follow through with action in September.

“With growth slowing, job creation fading and price pressures having fallen markedly compared to earlier in the year, the survey will give added impetus to calls for more aggressive stimulus from the ECB,” Williamson added.

According to IHS Markit, the region’s more domestically focused services sector remained the main driver of expansion in July, though weaker hiring trends are slowing its rate of growth. Germany, the largest economy in the bloc, has been “especially hard hit by the manufacturing and autos-sector downturns”, and may see total output contracting marginally in the third quarter.

To contact the reporter on this story: Carolynn Look in Frankfurt at clook4@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow

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