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Eurozone Private Sector Grows Most In 7 Months On Services

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Euro area private sector expanded at the fastest pace so far this year in June, as the contraction in manufacturing was offset by the improvement in the service sector, flash survey data from IHS Markit showed Friday.

The composite output index rose to a 7-month high of 52.1 in June from 51.8 a month ago, while economists had forecast the score to rise marginally to 52.0.

The flash reading puts growth in the second quarter up slightly on that seen in the first quarter, yet still the second-lowest since the fourth quarter of 2014.

Chris Williamson, chief business economist at IHS Markit, said the overall rate of expansion remains weak, with the survey data indicative of Eurozone growth of just over 0.2 percent in the second quarter.

The slight improvement in the flash PMIs for June will not be enough to deflect the European Central Bank from its new plan to ease policy within the coming months, Andrew Kenningham, an economist at Capital Economics, said.

The economist expects the bank to cut its deposit rate by 10 basis points in September.

ING economist Bert Colijn said growth remains weak at the moment, but Eurozone is not getting closer to recession.

According to ECB staff macroeconomic projections, the euro area will grow 1.2 percent this year and by 1.4 percent in 2020.

The IHS Markit survey showed that overall private sector growth was driven by the service sector, which reported the sharpest rise in business activity since last November. On the other hand, manufacturing remained in contraction zone.

The services Purchasing Managers' Index climbed to 53.4 in June from 52.9 in the previous month. The score was also above the forecast of 53.0.

At the same time, the manufacturing PMI edged up to 47.8 in June from 47.7 a month ago. The reading was expected to rise to 48.0.

Overall inflow of new business was the largest seen since last November. Improved inflows of new work in the service sector were countered by another steep fall in new orders for manufactured goods.

The overall pace of business activity exceeded that of new work received, leading to a fall in backlogs of work. Employment growth improved marginally but down on the average seen last year.

Optimism about the future fell further to its lowest since late-2014. The survey showed that inflationary pressures remained moderated.

Also, the survey today suggested widening growth trends between the core and the periphery. Germany and France both showed improved performances compared to earlier in the year as one-off factors drop out.

Germany's private sector grew at a moderate pace in June, which was unchanged from May. The composite PMI held steady at 52.6 in June. Economists had forecast a reading of 52.5.

The flash manufacturing PMI rose less-than-expected to 45.4 in June from 44.3 in the previous month. The expected score was 48.0.

Meanwhile, the services index increased unexpectedly to 55.6 in June from 55.4 in the preceding month. Economists had forecast a reading of 55.3.

Elsewhere, France's private sector expanded at the fastest pace in seven months in June. The composite output index rose to 52.9 from 51.2 in May. The reading was forecast to rise slightly to 51.3.

The services PMI improved to 53.1 in June from 51.5 a month ago. The expected score was 51.6. At 52.0, the factory PMI hit a 9-month high. Economists had forecast the reading to rise marginally to 50.9 from 50.6 in May.

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