Eurozone business picks up but uncertainty clouds outlook

Business activity in the euro-zone rose slightly more in June than previously believed as growth of output and new business speeded up.

The IHS Markit purchasing managers index for the currency bloc came in at 54.9 – comfortably better than the 50 cut-off between expansion and contraction and marginally up on an initial reading of 54.8 for June.

The survey showed activity improving on the 54.1 reading for May as services growth reached a four-month high. The pace of manufacturing growth weakened.

National data showed Ireland growing fastest with rates of increase picking up in Germany, France and Italy. By contrast Spain slowed to a 17-month low.

Looking forward, business optimism dipped to a 19-month low, reflecting political uncertainty, concerns over trade and capacity constraints.

Chris Williamson, IHS Markit’s chief business correspondent, said: ““Eurozone growth regained momentum in June, rounding off a respectable second quarter performance … A weakening in business optimism to the lowest for over one-and-a-half years reflects intensifying nervousness about the outlook for the economy.”

Optimism weakened most among manufacturers, whose fortunes are directly tied to global trading conditions threatened by talk of tit-for-tat tariffs between the US, China and the EU.

Service companies were more upbeat but their outlook was clouded by domestic political uncertainty – and Williamson said a trade war would affect the many services businesses that rely on a healthy manufacturing industry.

Input costs rose in June and will feed through to consumer prices, IHS Markit said. The combination of faster growth and rising prices may bolster the European Central Bank’s confidence in its decision to ease monetary stimulus.

Eurozone inflation rose to 2% in June – the highest reading for more than a year. Williamson said the weaker outlook supported the ECB’s cautious approach to tightening monetary policy.