London — Eurozone business growth accelerated in June, offering encouragement to the European Central Bank (ECB) to tighten policy, but optimism among purchasing managers was at its lowest ebb since late 2016, a survey found.
Faster growth across the currency union, alongside rising price pressures, will reassure ECB policy makers who said in June that the bank would shut its hallmark bond purchase scheme by the end of 2018.
But in a balanced announcement reflecting uncertainties hanging over the economy, the ECB signalled on June 14 that any interest-rate hike was still distant.
The UK provided a similar story of stronger growth. Its large services industry grew in June at its fastest rate since October, suggesting the economy might be strong enough for the Bank of England to raise rates in August, as expected.
IHS Markit’s final composite purchasing managers index (PMI) for the eurozone, seen as a good overall indicator of growth, rose to 54.9 in June from May’s 54.1, comfortably above the 50 mark separating growth from contraction.
That beat an earlier flash reading of 54.8, but the latest PMI is lagging much higher numbers from the beginning of 2018. The future output index, which tracks business optimism, fell to 63.4 from 63.7 — its lowest since November 2016.
German services growth accelerated to a four-month high in June and French private sector activity picked up, helped by a rebound in the services sector that more than offset a further slowdown in manufacturing.
IHS Markit said the PMIs signalled second-quarter economic growth of just more than 0.5%, matching the median forecast in a Reuters poll in June.
"This is a sign that at least some of the weakness in the first quarter was temporary and at least suggests we are not embarking on the start of a sharp slowdown," Jennifer McKeown at Capital Economics said of the eurozone numbers.
"There has been some stabilisation in the surveys if nothing else. That will reassure the ECB that a gradual normalisation of policy is warranted." The June manufacturing PMI, released on Monday, showed eurozone factory growth slowed to an 18-month low, slipping for the sixth month in a row amid widespread concern about trade barriers and their effect on economic activity.
Services firms were less affected by fears of a trade war.
Activity in the bloc’s dominant industry accelerated, with the PMI jumping to a four-month high of 55.2 from 53.8.
That increase came despite firms raising their charges much more sharply. The services output prices PMI bounced to a five-month high of 53.2 from 52.0.
"Firms’ costs and average selling prices for goods and services are meanwhile rising at rates close to seven-year highs, which will likely feed through to higher consumer price inflation in coming months," said Chris Williamson, chief business economist at IHS Markit.
Eurozone inflation rose to 2% in June, its highest rate for more than a year and above the ECB’s target, preliminary data from Eurostat showed last week.