Euro-Area Growth Momentum Slides as Industry Pain Overwhelms

(Bloomberg) -- Economic activity in the euro area's private sector weakened further as still-solid services couldn't make up for rapidly deteriorating manufacturing.

A composite Purchasing Managers' Index dropped to 51.5 in July, with goods output falling for a sixth months and at the greatest extent since 2013.

“The service sector continued to sustain the expansion of the overall euro-zone economy at the start of the third quarter,” said Chris Williamson, chief business economist at IHS Markit. “But there are signs that the scale of the manufacturing downturn is starting to overwhelm.”

Economic growth in the euro area slowed to just 0.2% in the April-June period, and companies including Siemens AG are blaming trade tensions and geopolitical uncertainty for a deteriorating outlook. IHS Markit estimates that at the start of the third quarter, the region's pace of expansion slipped closer to 0.1%.

The report comes as European Central Bank policy makers study tools for jumpstarting the economy. Analysts and investors expect them to lower interest rates and announce asset purchases as soon as September.

While domestic demand has so far been able to largely offset weakening global trade, IHS Markit says prospects of rising joblessness could pose a challenge.

“The main source of expansion currently appears to be the consumer, in turn buoyed by the relative strength of the labor market,” said Williamson. “There are signs that this growth engine is also losing impetus, and adding another headwind to the economy for the coming months.”

To contact the reporter on this story: Carolynn Look in Frankfurt at clook4@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow

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