Euro-Zone Business Stays Somber as ECB Plans for More Stimulus

(Bloomberg) --

An improvement in the euro area’s private sector in June failed to allay concerns that the economy is still teetering on the edge of a downturn.

IHS Markit’s composite purchasing managers’ index climbed to 52.2 in the month, just above the initial estimate and the highest reading since November. Yet all the growth lies in the services sector, with manufacturing in a slump and business confidence tumbling as price pressures wane.

“It would be wrong to get overly excited by the upturn,” said Chris Williamson, chief business economist at IHS Markit. “The survey is indicative of GDP merely rising by just over 0.2% in the second quarter, and a deterioration of business expectations for the year ahead -- to one of the lowest seen for over four years -- suggests the business mood remains somber.”

Repeated threats of trade tariffs by U.S. President Donald Trump’s administration are sapping the energy from the global economic expansion. The European Central Bank is widely expected to cut interest rates by September to support the euro zone, part of a worldwide shift that should also see the Federal Reserve lower borrowing costs as soon as this month.

The IHS report showed Germany and Ireland registering the biggest increase in activity, while Italy only managed a “marginal” improvement.

“A major concern is that the longer the manufacturing slump persists, the greater the likelihood of the weakness spilling over to services, where the resilience in the face of the factory sector’s downturn so far this year is looking increasingly unusual,” Williamson said. “We expect to see renewed stimulus from the ECB in coming months.”

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