Euro zone business growth stable in August, France surprises upwards

Euro zone business growth stable in August, France surprises upwards

Euro zone business growth stable in August, France surprises upwards

Written by Staff Writer

23 Aug, 2016 | 4:58 pm

Surprisingly strong growth in France supported stable euro zone private business activity during August but factories could face a tougher September as new order growth stumbled, surveys showed on Tuesday (August 23).

Muddying the outlook for the coming months is the United Kingdom’s vote in late June to leave the European Union, although so far the economic repercussions seem to have been confined to Britain, not its main trading partner.

“If we start to see a fall-off of investment and certainly investment spending within the German economy then that may shift focus away from, or the positive focus away from Germany to a more negative one moving forward. France is doing OK, the services sector and the manufacturing sector coming back to some semblance of normality. But Germany still leading the way,”said Jeremy Cook, Chief Economist, World First.

France’s private sector shrugged off its neighbour’s vote and accelerated to levels last seen just before the militant attacks in Paris in November, as an upturn in the service sector offset continued weakness in manufacturing.

“We’re starting to hopefully maybe see the impact of European Central Bank stimulus on the French private sector. The key will be how long this continues. One swallow doesn’t make a summer. We’ve seen similar blips in euro zone data over the course of the global financial crisis and they’ve been snuffed out pretty readily by fears elsewhere in the world,” added Cook.

Those attacks, and the recent one in Nice in July, hit the country’s service industry – the hotel and restaurant sector in particular – and resulted in lower demand for travel to Europe.

In France, the travel and tourism sector’s contribution to GDP will grow 1.1 percent this year, down from a previous forecast of 2.9 percent, the World Travel and Tourism Council said on Monday.

Still, the brighter overall picture should alleviate fears the French economy continued to slow down this quarter after unexpectedly stagnating in the second quarter of the year.

German private sector growth slowed in August, but remained robust overall, its PMI showed, suggesting Europe’s biggest economy is set to keep on expanding in the summer months after it grew more than expected in the second quarter.

Consumer confidence remained tepid across the currency bloc this month, another sign of low morale after the British decision to leave the EU, official data is expected to show later on Tuesday.

Markit’s flash composite Purchasing Managers’ Index for the euro zone edged up to a seven-month high of 53.3 from July’s 53.2, where any reading above 50 indicates growth. A Reuters poll of economists had predicted a slight dip to 53.1.

Markit said the PMI pointed to GDP expanding 0.3 percent this quarter, matching a Reuters poll earlier this month that showed the euro zone economic outlook stable but lacklustre, about half the speed at the start of the year.

“If there’s a Brexit impact later on down the line it’s likely to first manifest itself in the political scenarios we see play out in the euro zone over the course of the next year or so, be that the Italian elections, the Dutch, the French or the German elections in the late part of next year. And that will start to see a fall-off in investment spending, that may see a fall-off in consumer confidence and capital expenditure of businesses,” Cook said.

Pressure remains on the European Central Bank to announce more easing as it has so far been unsuccessful in getting inflation anywhere close to its 2 percent target ceiling.

It is currently at just 0.2 percent year-on-year. But there is little confidence amongst economists about just how much firepower the ECB has left.

Of some concern, having only trimmed their prices in July, firms returned to deeper discounting this month. The euro zone output price index fell to 49.5 from 49.8.

Discounting helped drive a PMI covering the bloc’s dominant service industry up to 53.1 from 52.9, also confounding expectations for a dip to 52.8. The manufacturing PMI was predicted to have held steady at July’s 52.0 but fell to 51.8.

The factory output index, which feeds into the composite PMI, nudged up to an eight-month high of 54.0 from 53.9.

However, new order growth was at its weakest since early 2015, falling to 51.5 from 52.2, suggesting the headline manufacturing PMI may decline next month. Service firms were also less optimistic about the year ahead. The business expectations index fell to 60.2 from 60.9, its lowest reading since late 2014.

Source: Reuters

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