May 2, 2018 / 8:19 AM / 20 days ago

Euro zone manufacturing cools off in April but remains warm

LONDON, (Reuters) - Euro zone factory growth slowed further last month from record highs at the turn of the year, but expansion remained strong as customers largely shrugged off rising prices, a survey showed on Wednesday.

FILE PHOTO - Unfinished pliers still glow after being hot-formed by a hammer at the factory of Knipex, a 130 year-old family-owned pliers and tools maker company in Wuppertal, western Germany, October 25, 2016. REUTERS/Wolfgang Rattay/File Photo

Having outpaced its peers in 2017, growth in the bloc’s economy has steadily weakened this year and a March Reuters poll said growth had peaked.

But the economy remains strong and price pressures showed some signs of increasing last month, so the European Central Bank is still likely to move away from its ultra-easy monetary policy this year.

IHS Markit’s April final manufacturing Purchasing Managers’ Index for the bloc slipped for a fourth month, falling to a 13-month low of 56.2 from March’s 56.6, above a preliminary reading of 56.0. Anything over 50 indicates growth.

An index measuring output, which feeds into a composite PMI due on Friday and is considered as a good guide to economic health, rose to 56.2 from March’s 55.9.

“The manufacturing sector saw growth weaken further at the start of the second quarter, but let’s not lose sight of the fact that the overall pace of expansion remains encouragingly solid,” said Chris Williamson, chief business economist at IHS Markit.

“Although growth has slowed markedly compared to the start of the year, December had seen the best performance in over 20 years of survey data collection, with factory activity clearly surging at an unsustainable rate.”

Factory growth slowed in three of the bloc’s four biggest economies - Germany, Italy and Spain - but France snapped a streak of three consecutive months of falling readings and picked up, earlier figures showed.

Gross domestic product figures due later on Wednesday are expected to show the euro zone economy expanded 0.4 percent last quarter, slower than the 0.6 percent achieved in the final three months of 2017.

The ECB wants inflation just below 2 percent but it held steady at 1.3 percent in April, official data are expected to show on Thursday. However, an output prices PMI suggested factories increased charges faster last month as it rose to 57.5 from 57.3.

“Anecdotal evidence from the surveys also highlights how demand has been curbed by other issues such as the stronger euro and rising prices,” Williamson said.

Since the turn of the year, the euro EUR= has risen against the dollar, peaking at a gain of almost 5 percent in February - making the bloc's exports more expensive. But those gains have been wiped out in the past fortnight.

Euro zone economic growth, already moderating in part from the stronger currency, will take a further hit from an ongoing trade dispute between the United States and China, according to a majority of economists polled by Reuters last month. [ECILT/EU]

Editing by Larry King

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