Euro zone business growth accelerates but prices slide

Euro zone business expanded at the second-fastest pace in three years last month as a buoyant service industry offset a lacklustre performance in manufacturing, surveys showed today.

But resilient growth in the bloc’s major economies bar France could not mask the deflationary pressure weighing on the region just two days ahead of a European Central Bank monetary policy meeting.

Markit’s Purchasing Managers’ Index (PMI) for the euro zone’s service industry leapt to 54.2 from June’s 52.8, although that was down from a flash reading of 54.4.

That helped drive up the composite PMI, which is based on surveys of thousands of companies across the region and is seen as a good indicator of growth, to 53.8 from June’s 52.8.

July’s final composite reading was below a preliminary estimate of 54.0 but above the 50 mark that separates growth from contraction for the 13th month. Markit said the data suggested the bloc’s economy was growing at a quarterly rate of 0.4 percent.

“The surveys point to a gathering pace of growth in the region’s major domestic economies, as signalled by the services-led upturns in countries such as Germany and Spain,” said Chris Williamson, chief economist at Markit.

“The worry is that this is still only generating very modest job creation. There’s also a great deal of uncertainty as to which direction the pace of growth will take in coming months.”

Headcount barely increased last month, and the composite employment index nudged up to 51.0 from 50.7, its highest since September 2011. But to keep busy firms were forced to run down old orders for a second month as new business growth decelerated.

Some of that business was generated by firms cutting prices again - and at a sharper rate than in June. The service output price index, which has been below 50 since late 2011, fell to 48.5 from 49.2.

Inflation in the 18-member bloc fell in July to just 0.4 per cent, the lowest since the height of the financial crisis nearly five years ago. To counter the threat of deflation, the ECB in June unveiled a raft of measures including cutting the deposit rate below zero and offering more long-term loans aimed at boosting bank lending to businesses. It is not expected to tinker with policy on Thursday.

Reuters