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Eurozone business activity slips further in June

Eurozone business activity slipped for the second month running in June, a closely watched survey showed on Monday, with France leading the fall and possibly heading to recession.

BRUSSELS: Eurozone business activity slipped for the second month running in June, a closely watched survey showed on Monday, with France leading the fall and possibly heading to recession.

Suggesting a modest recovery could be stalling, Markit Economics said its Eurozone Composite Purchasing Managers Index (PMI) for June, a leading indicator of overall economic activity, slipped to 52.8 points from 53.5 in May.

The data showed that growth remained robust in Germany, despite weakening slightly, but that the downturn deepened in France, the country generating the most worry in the 18-member currency bloc.

"Once again, the bad news in June came largely from France," said Holger Schmieding, chief economist at Berenberg Bank.

Business activity in France slumped to 48.0 points from 49.3 points, pushing even lower below the 50-point line which marks the difference between expansion and shrinkage of the economy.

"Although the survey suggests the eurozone as a whole should grow by at least 0.4 percent in the second quarter, France appears to be entering a renewed downturn after GDP (gross domestic product) stagnated in the first quarter," said Chris Williamson, Chief Economist at Markit.

Despite the problems in France, eurozone growth was the strongest since August 2007 with the average PMI reading for the second quarter the highest since the same period in 2011.

"The June PMI rounded off the strongest quarter for three years, but a concern is that a second consecutive monthly fall in the index signals that the eurozone recovery is losing momentum," Williamson said.

The currency bloc excluding heavyweights France and Germany "is seeing the strongest growth momentum at the moment, highlighting how the periphery is recovering," he added.

Germany's PMI stood well into expansion territory, but at 54.2 points, slightly lower than 56.1 points reached the previous month.

"Despite the further drop in the overall Eurozone composite PMI, the index remains comfortably in growth territory," said Martin van Vliet of ING.

But the PMI slip "vindicates the ECB's recent decision to implement further monetary easing and will keep fears of a Japanification of Europe firmly alive," he said.

Earlier this month, the European Central Bank decided to cut a key rate into negative territory and freed up short-term lending to lenders in the hope to jump-start the eurozone economy.

The ECB is fighting a stubbornly low rate of inflation that, at 0.5 percent in May, remains far lower than the central bank's 2.0 percent target and has sparked fears of deflation.

Markit's Williamson said evidence showed that the stimulus may be working with the survey showing the "largest increase in inflows of new business for three years."

He added that prices charged fell "to the smallest extent for over two years", also bringing some added comfort deflation fears.

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