Euro zone growth stumbles but firms more optimistic: PMI

By Jonathan Cable

LONDON, May 21 (Reuters) – Euro zone business growth was weaker than expected this month but firms increased staffing levels at the fastest rate in four years, suggesting they were becoming increasingly optimistic, a survey showed on Thursday.

Any signs of growth, alongside the survey showing firms barely cut prices after reducing them for over three years, will cheer European Central Bank policymakers coming just two months after they launched a trillion-euro stimulus program.

“There will be a lot of people disappointed that we have an easing in growth for the second month but it needs to be put in context that it is a reasonable number,” said Chris Williamson, survey compiler Markit’s chief economist.

“The broader picture is that the recovery remains on track – it’s doing rather well.”

Markit’s Composite Flash Purchasing Managers’ Index, based on surveys of thousands of companies and seen as a good growth indicator, fell to 53.4 from 53.9, missing the 53.8 predicted by a Reuters poll.

May marks the 23rd month above the 50 level that separates growth from contraction and Williamson said the PMI pointed to 0.4 percent economic growth in the current quarter, matching the prediction in a Reuters poll this week.

To meet the demand firms stepped up recruitment. The employment sub-index was 52.3, its highest reading since May 2011.

A PMI covering the bloc’s dominant service industry sank to 53.3 from April’s 54.1. A factory PMI rose to a 13-month high of 52.3 from 52.0 while a sub index covering output, which feeds into the composite PMI, nudged up to 53.5 from 53.4.

Demand from abroad for the bloc’s goods soared as customers took advantage of a weaker euro making the products cheaper. The manufacturing new export orders index jumped to a 13-month high of 53.0 from 52.3.

However, as in every month since late-2011, service firms cut their prices again — albeit only slightly. The output price index jumped to 49.8 from 48.9.

Euro zone prices were flat year-on-year in April, ending four months of falls, official inflation data showed this week.

(Editing by Toby Chopra)

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