August 5, 2015 / 10:57 AM / 4 years ago

European business growth eased in July over Greek fears

LONDON (Reuters) - Growth among European service businesses, which dominate most economies across the continent, eased last month as firms worried about Greece’s flirtation with bankruptcy, surveys showed on Wednesday.

People look at tablet computers at the Saturn electronic retailer in the newly opened Mall of Berlin shopping centre in Berlin September 25, 2014. REUTERS/Thomas Peter

Still, euro zone firms did accelerate growth towards the end of the month after Athens agreed a framework bailout plan with its European Union partners in mid-July, suggesting the bloc’s economic recovery remains on track.

“Our big picture view remains that probably in the early summer the economy continued to grow at a decent pace,” said Ben May at Oxford Economics. “But obviously given all the concerns about global growth prospects, particularly in places like China, it’s wise to remain wary.”

In Britain, which doesn’t use the euro, growth slowed more than expected last month as hiring eased to its slowest pace since March 2014, suggesting the economic recovery there weakened as it entered the second half of this year.

With conditions and sentiment improving in the currency bloc after the Greek deal, Markit’s July final Eurozone Composite Purchasing Managers’ Index (PMI) beat an earlier estimate of 53.7, settling at 53.9.

That was shy of June’s four-year high of 54.2, but the index has now been above the 50 mark that separates growth from contraction since mid-2013.

The composite PMI pointed to a third-quarter expansion of 0.4 percent, Markit said, in line with the expectations for the previous three months but less than the 0.5 percent median forecast in a Reuters poll taken two weeks ago. [ECILT/EU]

Earlier data from Germany suggested Europe’s largest economy started the third quarter in good shape and Spanish service firms hired staff at the fastest rate in eight years as a bumper summer tourism season got underway and its economic recovery strengthens.

However, French service and manufacturing activity slowed in July to a three-month low and retail sales across the 19 countries using the euro fell 0.6 percent in June, twice as much as expected, official data showed.

That fall came despite the PMI showing firms across the bloc cut prices as they have in every month since early 2012 - although only slightly in July.

Euro zone inflation was unchanged in July at 0.2 percent, official data showed last week, leaving the European Central Bank with more work to do to push up prices if it is to reach the 2 percent target ceiling.


Britain’s Markit/CIPS PMI fell to 57.4 in July from June’s 58.5, undershooting a Reuters poll forecast for 58.0. [GB/PMIS]

Taken together with manufacturing and construction surveys earlier this week, the PMI pointed to economic growth of around 0.6 percent per quarter, slightly slower than the 0.7 percent officially reported for the three months to June.

The findings will give Bank of England policymakers plenty to chew over as they prepare a slew of announcements for Thursday about the economic outlook and interest rates.

BoE Governor Mark Carney said last month it would take sustained growth of more than 0.6 percent per quarter to take up any remaining slack in the economy, a key factor behind any increase in rates from a record low 0.5 percent.

“We look for the BoE to reinforce the message that we are approaching the start point for policy tightening at Thursday’s BoE Inflation Report and press conference,” said James Knightley at ING. “We doubt it will happen before year-end.”

A Reuters poll two weeks ago said it would be early 2016, probably February, before the BoE pulls the trigger and adds 25 basis points to Bank Rate. [ECILT/GB]

Additional reporting by Andy Bruce; Editing by Raissa Kasolowsky

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