Eurozone growth indicator weaker than forecast

(BRUSSELS) - Private sector activity in the eurozone was weaker than forecast in June, hitting 20-month low level with recoveries slowing in Germany and France, a key growth indicator showed on Tuesday.

The data showed that output fell in Italy and Spain while Ireland continued to record a "very modest" pace of expansion, according to the Purchasing Managers Index (PMI) leading indicator compiled by research firm Markit.

"Over the past two months, the region has seen the sharpest slowing in growth since just after the collapse of Lehmans in late-2008," said Markit chief economist Chris Williamson.

The PMI, a survey of 4,500 companies in service and manufacturing in the 17-nation eurozone, fell to 53.3 points in June from 55.8 in May. A first estimate last month had forecast 53.6 points for June.

Despite the fall, the index remains above the 50-point mark indicating growth.

The eurozone posted growth of 0.8 percent in the first quarter, picking up steam after a mere 0.3 percent in the last three months of 2010.

Economists say the single currency area, scrambling to contain a debt crisis in Greece, will struggle to retain that pace of growth.

"The further loss of momentum in June bodes ill for the third quarter and suggests that growth may weaken further unless order books improve," Williamson said.

"National growth variations are also a worry. Of the four largest Eurozone nations, only Germany continued to record a PMI which is consistent with strong quarterly GDP growth in June, although even here the pace has slowed sharply.

"The PMIs are meanwhile consistent with only modest growth rates in France and Spain, while a risk of double-dip recession is highlighted in Italy."

The manufacturing sector saw a sharp drop, from 54.6 in May to 52 points in June, while services also slowed from 56 to 53.7 points.