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Euro zone business growth eases but recovery intact


Growth in business activity in the euro zone fell slightly in May from the month before but still expanded, with the region on course for its best quarter for three years.

The final reading of the composite Purchasing Managers' Index (PMI) - which measures both the manufacturing and services sector - posted a figure of 53.5, down only slightly from April's near-three year high of 54.0, according to data provider Markit.

Read MoreEuro zone manufacturing growth slowest in 6 months

This signaled a continued recovery and growth in the region for the eleventh month running. Manufacturing continued to lead the upturn in output during May, according to Markit, despite production and new orders expanding at the slowest rates in six months.

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"Despite falling, the euro zone PMI remains firmly in expansion territory and consistent with GDP (gross domestic product) rising by a reasonable 0.4-5 percent in the second quarter," Chris Williamson, the chief economist at Markit said in the press release.

"However, although the euro zone is enjoying its best performance for three years, this is an uneven, stuttering and lackluster recovery."


This unevenness was underlined by the performances of the two largest economies in the euro zone. Germany continued to report strong output growth with both sectors benefiting from rising new order inflows but France's output fell back into a contraction. This reflected the ongoing weakness of the French domestic market, Markit said. It will also pile more pressure on a government that it still due to fully implement reforms in the country.

Meanwhile, output rose further in both Italy and Spain, with the latter's figures staying close to April's seven-year record.

This modest uptick in business data was "reassuring news" that the recovery remains intact, according to Howard Archer, an economist at IHS Global Insight. Euro zone GDP in the first quarter eked out growth of just 0.2 percent and there are persistent fears of deflation on the continent as well as reports that German business is being affected by events in Ukraine.

"Given concerns about the possibility of deflation in the euro zone, it is noteworthy that prices charged by service companies fell for a 30th month running and at the fastest rate since December 2013," Archer said in a research note after the data release.

Archer now expects that hopes will center on a combination of factors for the euro zone recovery, in reduced fiscal squeezes, very accommodative monetary policy and sharply reduced sovereign debt tensions.