Euro-area economic rebound to be delayed

Bloomberg

The euro-area economic rebound expected this quarter remains out of reach for now. After bad weather, strikes and a flu epidemic weighed on growth at the start of the year, manufacturing and services suffered another setback in May, when an unusual number of public holidays damped orders. In a sign that investors are getting impatient with the 19-nation economy, the single currency fell to the lowest level since November.
For European Central Bank officials preparing to set out the future path for monetary policy, the report may mean delaying a decision to scale back unprecedented support until they can better judge the region’s economic health. So far, Governing Council members have expressed confidence that the growth and inflation outlook hasn’t been fundamentally derailed.
In May, new order growth in the private sector weakened, hiring and backlogs of work showed slower rates of increase and companies became less optimistic about the outlook, according to IHS Markit. Its composite Purchasing Managers’ Index fell to 18-month low of 54.1, weaker than economists’ forecast.
This will “challenge the view that the economy is experiencing only a temporary soft spot,” said Anders Svendsen, an economist at Nordea Markets in Copenhagen. “The numbers do strengthen our view that the June meeting will come too early, and the ECB will wait until the July meeting before making the next important decisions on the future of its monetary policy.”
The euro was down 0.4 percent at 11:05 a.m. Frankfurt time, trading at $1.1727. “Some of the fog will hopefully lift with the June PMI data,” said Chris Williamson, chief business economist at IHS Markit.
Preliminary figures will be published on June 22, a week after the ECB holds its next policy meeting. Officials have indicated in the past that they saw scope to wait until July to decide on their bond-buying program. Asset purchases are currently set to expire in September, although they could be extended if warranted.