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Euro-Area Economy In for More Weakness After April Slowdown

(Bloomberg) -- The euro-area economy looks set for further weakness in May after private-sector activity slowed for a third month in April.

A composite purchasing managers’ index published Friday came in at 55.1, below the flash estimate of 55.2 and the lowest since January 2017. The drag was due to services, where the gauge dropped more than initially estimated to 54.7. Readings above 50 signal expansion.

Euro-Area Economy In for More Weakness After April Slowdown

Among the region’s biggest economies, composite measures for Germany, Italy and Spain declined, while France recorded an increase. IHS Markit, which compiled the PMI, said euro-region growth remains “solid,” but noted that two forward-looking indicators -- backlogs of work and business expectations -- had declined.

“Any further deterioration could herald new concerns among policy makers regarding the economic outlook,” said Chris Williamson, chief business economist at IHS Markit.

The numbers are the latest in a spate of disappointing reports that prompted the European Central Bank to hold off from discussing the end of its stimulus programs. Policy makers, who met last week, want time to judge whether the trend is temporary or marks a fundamental downturn in demand.

While officials have acknowledged the recent data, they’ve stuck to their view that growth isn’t under serious threat. ECB Vice President Vitor Constancio glossed over the economy’s weakness in a speech in Malta on Friday.

“The ongoing robust recovery that the euro zone is experiencing is a source of optimism for the immediate future,” he said. “The euro area is much more resilient to possible external financial shocks.”

ECB chief economist Peter Praet said on Thursday that the region’s slowdown from the breakneck pace of 2017 was expected but has come sooner than anticipated. He also said it’s broad-based, appearing in hard data as well as surveys, and across most sectors and countries.

The ECB’s next policy meeting is June 14, though most economists see July as the more likely date to announce that bond purchases will be wound down, probably by the end of the year.

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