Euro-area economic growth gathers pace in June as risks persist

Bloomberg

Economic momentum in the euro area unexpectedly picked up in June, suggesting the 19-nation bloc is starting to recover from a temporary soft patch just as risks to the outlook increase.
Private-sector growth also gathered pace in the region’s two largest economies, Germany and France, underpinning the European Central Bank’s prediction that a rebound — even if it arrives later than expected — is still in the cards. Japan’s manufacturing sector also strengthened in a sign global economic prospects remain favorable.
The data come just a week after the Federal Reserve raised interest rates for the second time this year and the ECB said it will end bond purchases by December, while the Bank of Japan held tight to stimulus amid still-weak inflation and heightened global uncertainty. The US administration is fueling concern that a full-fledged trade war will derail the current upswing, with populism on the rise around the world adding to risks.
In the euro area, a composite purchasing managers’ index climbed to 54.8 in June from 54.1 in May, according to IHS Markit. The median estimate in a Bloomberg survey was for a drop to 53.9. The increase was driven by a jump in services growth, while a slowdown in manufacturing persisted.
The euro-area composite PMI survey suggests the economy is continuing to expand at a healthy pace. We view it as pointing to a rebound in GDP growth from the slowdown in 1Q, especially after the headline rose for the first time since January. The European Central Bank is likely to see confirmation in the report that it made the right decision in announcing an end to its quantitative easing program,” said David Powell and Jamie Murray, Bloomberg Economics.
“The details of the survey warn against any complacency,” said Chris Williamson, chief business economist at Markit. “While the June upturn provides some hope that the weakening of official data earlier in the year may have overstated the region’s weakness, the risks remained tilted towards a further slowdown in the second half of the year.”
The region’s growth rate fell to 0.4 percent in the first quarter from 0.7 percent at the end of last year. The ECB, which updated its economic projections last week, predicts quarterly expansions of 0.5 percent through the end of 2019. President Mario Draghi said last week that the recent “soft patch” may last longer, but that didn’t change the view of underlying momentum.