Euro zone economic growth slows sharply in June -PMI

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Euro zone economic growth slows sharply in June -PMI

LONDON Reuters - Business growth has slowed this month and by much more than expected, as consumers concerned about soaring bills opt to stay at home and defer purchases to save money, a survey showed on Thursday.

S&P Global's flash Composite Purchasing Managers' Index PMI, seen as a good indicator of overall economic health, slumped to 51.9 in June from 54.8 in May, far below the 54.0 predicted in a Reuters poll and its lowest level since February 2021, a decline that was seen as a good indicator of overall economic health.

The Euro zone's economic growth is showing signs of faltering as demand for the pandemic is already fading, having been offset by the cost of living shock and slumping business and consumer confidence, said Chris Williamson, chief business economist at S&P Global.

The composite new business index dropped to a 16 month low of 50.0, the dividing line between growth and contraction, from 53.3.

A PMI covering the bloc's dominant services industry fell to 52.8 from 56.1, missing expectations for 55.5 and its weakest reading since April 2021.

The growth in demand for services was all but dried up, and firms faced input costs rising at a near record rate, forcing them to pass some of that burden on to customers. The input prices index rose to 78.3 from 77.4 and has only been higher twice in the survey's 24 year history - in March and April.

Inflation in the bloc hit a new 8.1% last month and could go higher in the coming months, so the European Central Bank is expected to raise its deposit rate to zero for the first time in a decade in September, according to a Reuters poll. ECILT EU High prices means demand for manufactured goods fell at the fastest rate since May 2020, when the coronaviruses took hold, and the headline PMI fell to a near two-year low of 52.0 from 54.6. The Reuters poll had predicted a drop to 53.9.

An index that feeds into the composite PMI, it dropped to 49.3 from 51.3, its first time sub-50 in two years.

Inflows of new business have been stalled due to a slump in demand for goods and reduced demand for services from cash-strapped consumers, according to Williamson.

Business confidence has fallen sharply to a level rarely seen before the epidemic since the region's economic contraction in 2012, hinting an imminent downturn unless demand is revived. With costs still soaring and supply chains disrupted, factories cut back on purchases of raw materials, suggesting there would be little improvement anytime soon. The future output index fell to 51.6 from 55.4, the lowest since May 2020.