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German economy lags eurozone peers for first time in 12 years

Aug 03 2017 10:32
Alessandro Speciale, Bloomberg

Frankfurt - Germany’s economy slowed more than initially estimated at the start of the third quarter, leaving it trailing the euro region’s other large nations. 

IHS Markit’s German composite Purchasing Managers Index for July dropped to 54.7, down from 56.4 in June and missing the 55.1 flash reading. That’s a 10-month low and the first time in more than 12 years that the survey for Germany has lagged France, Italy and Spain. 

The figures nevertheless indicate a solid quarterly growth of between 0.4% and 0.5% for the bloc’s largest economy. In the eurozone overall, the composite PMI fell to 55.7 in July, though the economy remains on track to sustain the speed of its expansion this quarter. 

“The surveys indicated a slight cooling in the pace of growth in July, but this is still an encouragingly upbeat picture,” said Chris Williamson, chief business economist at IHS Markit.

The bloc’s economy expanded 0.6% in the second quarter, with Spain’s 0.9% almost double than France’s 0.5%. Germany and Italy will publish figures on August 15 and August 16, respectively.

“While all countries continued to see ongoing robust growth as we move into the second half of 2017, the overall slowing in the rate of expansion will add a note of caution to ECB policy making,” said Williamson.

While the hint of economic convergence in the PMI will be welcome news for the European Central Bank, slower increases in both input and output costs show that self-sustained inflation is still some way off.

The ECB’s Governing Council plans to start debating policy normalisation as soon as its September meeting.

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