Eurozone economy slows as Germany weakness continues

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Eurozone economy slows as Germany weakness continues
LEIPZIG, GERMANY - MAY 20: Workers assemble BMW I3 electric cars on the assembly line at the BMW factory on May 20, 2019 in Leipzig, Germany. German President Frank-Walter Steinmeier later spoke at a gathering of the plant's workers on the importance of Europe and urged the workers to vote in upcoming European parliamentary elections. (Photo by Sean Gallup/Getty Images)

Growth in the Eurozone economy softened in July as German output fell to a six-year low and the manufacturing sector continued to struggle, a closely-watched survey has shown.

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Yet the area’s services sector posted solid growth as employment grew and pay rose, highlighting a divide in the zone’s economy.

The purchasing managers’ index (PMI) composite output index, a gauge of the health of the overall economy from data provider IHS Markit, fell to 51.5 in July. This was down from June’s 52.2 and showed only modest growth in the zone’s economy.

Germany’s composite PMI fell to a 73-month low of 50.9 in March as its economy continued to grapple with trade tensions, a global slowdown, weak demand from China, and Brexit. A score of over 50 indicates expansion.

The Eurozone’s manufacturing sector saw a “notable and accelerated fall in manufacturing production during July,” IHS Markit said.

However, “service sector activity rose at a solid, albeit slightly slower pace”. The PMI services business activity index posted 53.2 in July, down from 53.6 in June but still showing solid expansion.

In Germany, “a rapidly deteriorating manufacturing economy almost entirely offset ongoing robust growth of the service sector”.

IHS Markit said the overall Eurozone economy was dragged down by weak demand in July. The amount of new work private sector companies were given rose only slightly due to a marked reduction in manufacturing orders.

Firms continued to hire, however, to keep on top of their workloads, continuing a trend from November 2014. Yet the growth in staffing numbers was the weakest since April 2016.

Chris Williamson, chief business economist at IHS Markit, said: “The service sector continued to sustain the expansion of the overall eurozone economy at the start of the third quarter, but there are signs that the scale of the manufacturing downturn is starting to overwhelm.”

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“The main source of expansion currently appears to be the consumer, in turn buoyed by the relative strength of the labour market.”