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News : EU Economy Last Updated: Aug 27, 2014 - 10:38 PM

Eurozone recovery weakens in August, as France stabilises
By Michael Hennigan, Finfacts founder and editor
Aug 21, 2014 - 10:01 AM

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The Markit Flash Eurozone Composite Output Index gave back the ground it made in July, posting 52.8 in August, down from 53.8. The headline index has now remained above the neutral 50.0 mark for 14 successive months - -  official data show that Eurozone industrial production fell in both May and June

Although the rate of increase was broadly in line with the average for the current sequence of expansion, it was nonetheless the joint-weakest in the year-to-date and consistent with only a low pace of GDP growth (approximately 0.3%).

Output increased in both the manufacturing and service sectors, with service providers again reporting the sharper rate of expansion. However, rates of growth eased in both sectors. The extent of the slowing was much sharper in manufacturing, taking its rate of expansion to the weakest in the current 14-month sequence of production growth.

Markit said the ongoing subdued and fragile nature of the upturn in economic activity also remains too weak to encourage companies to take on staff in sufficiently large numbers to have a meaningful impact on unemployment. August saw job creation slow to near-stagnation, albeit still an improvement on the steep job losses seen this time last year, as a slight increase in employment at service providers was offset by further cuts at manufacturers.

Economic and geopolitical uncertainties, alongside the continuing need to maintain cost competiveness, are also acting as brakes on job creation.

The growth rate of new business ticked higher in August. Market conditions brightened slightly for service providers, as new work received increased at the joint-quickest pace since May 2011. The downside was this being partly offset by the slowest increases in both manufacturing new orders and new export business in over a year.

On the cost front, average input prices rose for the fifteenth month running in August. However, the rate of increase eased to a three-month low and was well below the long-run survey average. Meanwhile, the ongoing subdued overall level of demand and rising competitive pressures led to a further cut in average output prices. Selling prices have fallen in each month since April 2012, with the latest cut the sharpest in three months.

Looking at the data by country, the marked divergence between the performances of Germany and France showed signs of narrowing.

Output in Germany rose for the sixteenth straight month in August. Although the pace of expansion eased from July’s three-month high, it was still solid and above the average for that sequence. Meanwhile, economic activity stabilised in France following contractions in the prior three months.

The divergence between the labour markets of the big-two nations continued, however, as Germany saw a modest gain in employee numbers at a time when France reported the steepest pace of job losses since February.

Further progress was made by the nations outside of the big-two, with economic output rising (on average) for the thirteenth successive month and a further slight increase in payroll numbers. However, on a more cautionary note, the pace of output expansion eased to its weakest in the year so far, reflecting a similar slowdown in new business growth.

Rob Dobson, senior economist at Markit said: "The Eurozone economy continued to make steady progress in August, as the region looks to bounce back following the recent weaker-than-expected GDP readings for the currency union.

"However, with the PMI Output Index slipping slightly to 52.8, the region remains on course to register growth of only around 0.3%-0.4% in the third quarter, a level that is unlikely to stimulate any real turnaround in the labour market.

"Even before rising geopolitical headwinds began to buffet the economy, the double-digit unemployment rate prevailing in the Eurozone was already excessively high. Signs are that the modest job creation of recent months has stalled in August.

"There are some positive points coming out of the national data, however, with Germany recording solid growth and France stabilising following a brief period of contraction. Further progress was also made outside of the big-two economies, although signs that output and new order growth slowed sharply over the month adds a cautionary note for the outlook in the „periphery‟.

"The muted rate of expansion and stalling labour market recovery will keep already-watchful eyes on the ECB for any signals that the ground is being softened for further supportive measures. However, it is most likely that policymakers will allow recent stimulus efforts to have a greater chance to filter through to the real economy before making any further moves."

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