Eurozone business activity expanded at its fastest pace in four years last month as the European Central Bank’s (ECB) stimulus package more than offset fears Greece could crash out of the currency union, surveys showed.
Speculation that Athens would miss a 1.6 billion euro (US$1.8 billion) repayment to the IMF on Tuesday heightened expectations Greece would have to abandon the euro, keeping manufacturing activity in check last month.
However, the service industry shrugged off those fears and ramped up activity at the fastest rate since mid-2011, suggesting low inflation and the ECB’s 1 trillion euro bond-buying program was boosting spending among consumers and businesses.
The final composite purchasing managers’ index (PMI) for last month, which combines manufacturing and services activity and is seen as a good guide to growth, came in at 54.2, just above a preliminary reading of 54.1 and well ahead of May’s 53.6.
That was its highest reading since May 2011. The index has now been above the 50 mark that separates growth from contraction for two years.
“Despite the escalation of the Greek crisis in the second half of the month, the final PMI for June came in slightly above the ‘flash’ estimate, suggesting the turmoil has so far had little discernible impact on the real economy,” Markit Ltd chief economist Chris Williamson said.
However, as they have since early 2012, companies cut prices to drum up trade. The composite output price index was 49.4, below the May and flash readings of 49.5.
Price discounting helped drive up the PMI covering the service industry, which makes up the bulk of the eurozone economy. It rose to 54.4 from May’s 53.8, matching the preliminary estimate.
To meet the demand, services took on staff at the second-fastest rate since mid-2011. The employment sub-index was 52.2, below the previous month’s 52.6.
Markit said the data pointed to second-quarter economic growth of 0.4 percent, in line with a Reuters poll taken last month.
Detailed PMI data are only available under license from Markit and customers need to apply to Markit for a license.
Separately, activity in China’s services sector slowed to its lowest in five months last month, a private survey showed yesterday, suggesting the economy still needs further policy support despite some signs of steadying.
Beijing has rolled out a suite of measures since last year, including interest rate cuts, to prop up growth, but economists worry that persistent weakness in exports and the property sector combined with high local government debt will keep the world’s second-largest economy under pressure.
The headline HSBC/Markit PMI for last month fell to 51.8 from 53.5 in May, hitting its lowest since January, but still indicating expansion for the 11th straight month. A reading above 50 points indicates growth on a monthly basis, while one below that points to contraction.
“In the service sector, business activity, new orders and employment all expanded at slower rates, while optimism towards the business outlook also moderated,” Markit economist Annabel Fiddes said.
A similar HSBC/Markit factory survey released on Wednesday showed activity contracted for the fourth straight month last month, but at a slower pace than in May, fueling hopes that that sector might be slowly bottoming out.
“The persistently weak performance of manufacturers combined with a slowdown in the service sector is likely to prompt the authorities to introduce further stimulus measures to ensure growth momentum improves in the second half of the year and to reach the GDP growth target of around 7 percent,” Fiddes said.
The HSBC readings bucked the findings of official factory and services surveys earlier this week, pointing to growing unevenness in conditions even for companies competing in the same sectors.
The official factory survey showed activity expanded slightly last month, while growth in the services sector speed up.
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