Euro-Region Recovery in Services Output Supports Job Creation

Bloomberg: Euro-area services output expanded at the strongest pace in almost three years, helping create jobs in a region suffering from low inflation, anemic growth and unemployment close to a record high.

A Purchasing Managers’ Index rose to 53.2 last month from 53.1, London-based Markit Economics said today. That’s less than the May 22 preliminary reading of 53.5. The index has held above the 50 mark, which separates growth from contraction, for 10 months. A measure of manufacturing and services activitydeclined to 53.5 from 54 in April.

“Although the euro zone is enjoying its best performance in three years, this is an uneven, stuttering and lackluster recovery,” said Chris Williamson, chief economist at Markit in London. “Employment has also returned to growth in recent months, but the rate of economic expansion remains too low to generate enough job creation to bring unemployment down to any significant degree.”

Joblessness in April ranged from 4.9 percent in Austria to 25.1 percent in Spain and averaged 11.7 percent in the 18-nation currency bloc, adding to the challenges European Central Bank officials are facing in their efforts to rekindle growth and prevent deflation. Policy makers convening in Frankfurt tomorrow will probably lower economic forecasts and add stimulus measures.

The euro-area economy expanded 0.2 percent in the first quarter, and PMI data are consistent with growth of as much as 0.5 percent in the current period, Markit said.

‘Key Driver’

While Germany “remains the key driver of the region’s recovery,” France is a “major drag,” Williamson said. A gauge of manufacturing and services activity in Europe’s largest economy eased to 55.6 in May, while French output contracted.

Companies hiring workers in Germany and Spain offset job cuts in Italy and France, leading to a second monthly increase in employment in the euro area. Even so, the jobless rate has hardly budged from a record 12 percent last year.

Raising pressure on the ECB to act, euro-area inflation slowed more than economists forecast in May, with the rate falling to 0.5 percent from 0.7 percent in April. Policy makers have said they’re considering all options within their mandate.

According to Bloomberg’s monthly survey, 90 percent of economists expect the central bank to lower rates. In addition to a cut in the benchmark rate, now at 0.25 percent, the majority see the ECB becoming the first major central bank to cut its deposit rate below zero. New liquidity operations to fuel lending to smaller companies and asset purchases are also among measures policy makers are debating.

reporters on this story: Catherine Bosley in Zurich