Euro zone business activity nudged up slightly faster than previously thought last month but firms were at their gloomiest since late 2016, offering little hope for a more robust rebound, a survey showed today.
News of stronger growth, alongside rising price pressures, will reassure policymakers at the European Central Bank who last month said the ECB would shut its huge bond purchase scheme by the close of the year.
But in a balanced announcement reflecting uncertainties hanging over the economy, the ECB signalled on June 14 that any interest rate hike is still distant.
IHS Markit's Final Composite Purchasing Managers' Index, seen as a good overall indicator of euro zone growth, rose to 54.9 in June from May's 54.1, comfortably above the 50 mark separating growth from contraction.
That beat an earlier flash reading of 54.8, but the latest PMI is lagging much higher numbers from around the turn of the year.
The future output index, which tracks business optimism, fell to 63.4 from 63.7 - its lowest since November 2016.
"The upturn in the pace of economic growth and resurgent price pressures adds support to the ECB's view that stimulus should be tapered later this year, but the details of the survey also justify the central bank's cautious approach to policy," said Chris Williamson, chief business economist at IHS Markit.
"In particular, a weakening in business optimism to the lowest for over 1-1/2 years reflects intensifying nervousness about the outlook for the economy, notably in manufacturing, as trade-war talk escalates," he added.
The June manufacturing PMI, released on Monday, showed euro zone factory growth slowed to an 18-month low, slipping for the sixth month in a row amid widespread concerns about trade barriers and their impact on economic activity.
Services firms were less affected by fears of a trade war. Activity in the bloc's dominant industry accelerated, with the PMI jumping to a four-month high of 55.2 from 53.8.
That increase came despite firms raising their charges much more sharply. The services output prices PMI bounced to a five-month high of 53.2 from 52.
"Firms' costs and average selling prices for goods and services are meanwhile rising at rates close to seven-year highs, which will likely feed through to higher consumer price inflation in coming months," Williamson said.
Euro zone inflation rose to 2% in June, its highest rate for more than a year and above the ECB's target, preliminary data from Eurostat showed last week.
Williamson said the PMIs signalled second quarter economic growth of just over 0.5%, matching the median forecast in a Reuters poll last month.