Euro zone sees business growth in spite of Brexit

Survey also shows upturn in overall business conditions in US, albeit softer than July's

LONDON • Economic activity in the euro zone edged higher this month while that in the United States was slightly down, a closely watched survey showed yesterday.

Private business activity in the euro zone maintained its resilience despite Britain's shock vote to leave the European Union, with surprisingly strong growth in France and regional powerhouse Germany. But factories could face a tougher September as new order growth stumbled, Markit said in a report.

"August's slight rise in the euro zone Composite Purchasing Managers' Index suggests that despite shrugging off the UK's Brexit vote, economic conditions remain fairly subdued," said Mr Stephen Brown of Capital Economics.

France's private sector shrugged off its neighbour's vote and accelerated to levels last seen just before the militant attacks in Paris in November, as an upturn in the service sector offset continued weakness in manufacturing, Reuters said.

Lower demand for travel to Europe, however, hit services in its hotel and restaurant sector.

Consumer confidence remained tepid across the currency bloc this month, another sign of low morale after the British decision to leave the EU, official data said.

Markit's flash composite Purchasing Managers' Index (PMI) for the euro zone edged up to a seven-month high of 53.3 from July's 53.2. A reading above 50 indicates growth. Markit said the PMI pointed to gross domestic product expanding 0.3 per cent this quarter, about half the speed at the start of the year.

However, new order growth was at its weakest since early last year, falling to 51.5 from 52.2, suggesting the headline manufacturing PMI may decline next month. Service firms were also less optimistic about the year ahead.

"With underlying growth remaining muted, the European Central Bank looks set to ease monetary policy further by the year end. After all, we do not expect inflation to increase by then either," economists at Commerzbank told clients.

On the other hand, Markit's flash manufacturing PMI for the US stood at 52.1, pointing to a moderate rate of improvement but still down from the previous month's reading of 52.9.

The US goods producers saw an upturn in overall business conditions this month, though the rate of improvement was softer than that seen last month, Markit said in its report.

While US manufacturers signalled increased output, total new work rose at a slower pace and employment expanded at the weakest rate in four months. New orders also expanded at a slower rate.

A version of this article appeared in the print edition of The Straits Times on August 24, 2016, with the headline 'Euro zone sees business growth in spite of Brexit'. Print Edition | Subscribe