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Eurozone Private Sector Slump Eases, But Unlikely To Avert Q2 Contraction

EurozonePMI-062013.jpg

The downturn in Eurozone's private sector economy eased sharply in May, but the improvement is unlikely to provide sufficient lift to the region's economy to avoid a further contraction in the second quarter.

Further decline in new orders, albeit slowest in five months, and job cuts suggest demand remained weak and hence, the economy may have shrunk in the three months ending June.

The currency bloc has been mired in the longest recession in its history as governments resort to growth-crippling austerity measures, weakening economic activity as well as the employment market.

Releived by the encouraging data, the European Central Bank that has been under pressure to engage in monetary easing to bring the 17-nation economy back on the growth path, is likely to maintain status quo in the near term.

Flash estimates from a purchasing managers' survey compiled by Markit Economics showed on Thursday that the seasonally adjusted composite output index, a measure of activity in the manufacturing sector and the service sector, rose to 48.9 from 47.7 in May.

The reading exceeded consensus forecast of 48.1, but remained below the no-change 50 mark that separates growth from contraction.

"June's euro-zone PMI survey continued the upward trend of recent months, but still suggests that the euro-zone economy contracted for a seventh quarter running in Q2," Capital Economics European Economist Ben May said.

The rate of fall in new orders eased for the third month in a row. Companies lowered their staffing levels for the eighteenth consecutive month, and at a marginally faster rate than in May.

Input prices paid by private sector firms climbed for the first time in three months as a further rise in service sector input costs more than offset a marked fall in manufacturers' costs. Meanwhile, firms lowered their output prices for the fifteenth straight month amid strong competition.

The index measuring manufacturing activity climbed to a 16-month high of 48.7 in June from the previous month's 48.3. The expected score was 48.6. Production levels at euro area factories fell at the slowest rate in nearly one-and-half years.

At the same time, the purchasing managers' index for the service sector advanced to 48.6 from 47.2 in May, and hit the highest level in fifteen months. Economists had forecast a more modest rise to 47.5.

"The survey data suggest that GDP is likely to have shrunk by 0.2 percent in the second quarter, similar to the fall seen in the first three months of the year and extending the region's recession into a record seventh successive quarter," Markit chief economist Chris Williamson said.

Among member states, the purchasing managers indexes for Germany and France recorded strong growths in June, with the former moving further above the neutral mark, while the latter still remained in the negative territory.

Earlier this month, the official statistical office said that Eurozone industrial production increased unexpectedly in April, signaling improvement in the region's economic activity.

The European Central Bank left its key interest rate unchanged at 0.5 percent in the latest rate-setting session as policy makers took a wait-and-watch stance after last month's quarter-point reduction, which was the first rate-cut in nine months.

by RTT Staff Writer

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