Euro zone economic recovery loses momentum in August – PMI

LONDON, Sept 3- The euro zone’s rebound from its deepest downturn on record faltered in August as growth in the bloc’s dominant service industry almost ground to a halt, a survey showed on Thursday, suggesting the long road to recovery will be bumpy. “Service sector companies across the euro zone saw growth of business activity grind almost to a halt in August,…

LONDON, Sept 3 (Reuters) – The euro zone’s rebound from its

deepest downturn on record faltered in August as growth in the

bloc’s dominant service industry almost ground to a halt, a

survey showed on Thursday, suggesting the long road to recovery

will be bumpy.

Last quarter the bloc’s economy contracted 12.1% aslockdowns imposed to quell the spread of the novel coronavirusled to businesses being shuttered and citizens staying home,official data showed.

A Reuters poll last month predicted a bounceback thisquarter with growth of 8.1% but said a full recovery would taketwo years or more.

But IHS Markit’s final Composite Purchasing Managers’ Index,seen as a good gauge of economic health, suggested the economywas still floundering.

It sank to 51.9 last month from July’s 54.9 – close to the50 mark separating growth from contraction, albeit slightlybetter than an initial flash reading of 51.6. The services PMIfell to 50.5 from 54.7, better than its flash reading of 50.1.

“Service sector companies across the euro zone saw growth ofbusiness activity grind almost to a halt in August, fuelingworries that the post-lockdown rebound has started to fade amidongoing social distancing restrictions linked to COVID-19,” saidChris Williamson, chief business economist at IHS Markit.

“The latest reading still sends a disappointing signal thatthe rebound has lost almost all momentum.”

Demand stuttered across the currency union, despite firmscutting prices, and headcount was reduced for a sixth month.

Inflation turned negative last month for the first timesince May 2016, official data showed on Tuesday, and thecomposite output price index remained below the 50 line at 48.5.That was below a flash reading of 49.0 but above July’s 48.1.

The European Central Bank would like inflation just below 2%and has already bought record amounts of debt to keep borrowingcosts down and support the economy.

ECB Chief Economist Philip Lane recently warned complacencyrisked entrenching low inflation and reducing price growthexpectations, making it even more difficult for the ECB todeliver on its target. Some economists took his words as a hintthe bank is preparing to expand stimulus even further.

That extra support may be needed as the new business indexfor the service sector fell below 50 to 49.8 from July’s 51.4.

“Although the relative strength of the PMI data in July andAugust mean the autumn is likely to still see the economyrebound strongly from the collapse witnessed in the spring, thesurvey highlights how policymakers will need to remain focusedfirmly on sustaining the recovery as we head further into theyear,” Williamson said.(Reporting by Jonathan Cable; Editing by Hugh Lawson)

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