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Euro Zone Slump Eases but New Orders Dry Up

Hannelore Foerster | Getty Images

The downturn across euro zone businesses eased slightly this month, although a dearth of new orders means the bloc's economy is likely to contract again in the second quarter, business surveys showed on Thursday.

Markit's flash Eurozone Services PMI, which surveys around 2,000 companies ranging from major banks to caterers, rose in May to 47.5, a three-month high, from 47.0 in April.

While that was a little better than economists polled by Reuters expected, the PMI has now spent 16 straight months below the 50 mark that divides growth and contraction.

French companies continued to fare poorly this month, while activity in German firms effectively stagnated.

Overall, survey compiler Markit said the surveys pointed to a similar economic performance in the second quarter as the 0.3 percent contraction the euro zone logged in the January-March period.

"There are signs the rate of decline is easing, which does suggest we may be moving into a period of stabilization, but it's taking a lot longer than most people anticipated," said Chris Williamson, chief economist at Markit.

"It's looking more like the end of the year (until) we're going to see the numbers start to show signs of stabilizing."

The new orders services index fell to 45.3 from 46.2, meaning a big upturn in the PMI next month looks unlikely.

Williamson said there were signs that the rate of decline eased this month in the "peripheral" euro zone countries outside Germany and France.

"But against that we've seen a worrying steep deterioration in service sector expectations for the year ahead."

Although business expectations for the year ahead hit an 11-month high in April, it plummeted in May to its lowest point since December.

The PMI for the manufacturing sector rose to 47.8 this month from 46.7 in April, while showing new orders and output declined at a slower pace, comfortably beating expectations of 47.0 predicted by economists.

Combining both the services and manufacturing reports, the composite PMI hit a three-month high of 47.7 in May, compared with April's 46.9, while showing continuing job losses.

Both the input and output prices index stayed below the 50 mark this month, indicating deflationary pressures.

"The European Central Bank doesn't have anything to worry about in relation to inflation," said Williamson.

"More likely, it's going to find it difficult to get inflation up to the level it wants," he added, referring to the central bank's target of close to 2 percent.


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