Euro Zone Factory Growth Stumbles As Core Struggles: PMI

Euro zone factory growth was weaker than previously thought last month as the bloc's core countries continued to struggle, a survey of businesses showed on Monday.

That is likely to disappoint the European Central Bank, which is battling to get inflation even close to its target, as will the survey's finding that factories held prices in May after raising them in April for the first time in eight months.

To restore economic growth and combat deflation, the ECB started buying around 60 billion euros a month of mainly government bonds in March and the survey suggested it is having at least some effect.

Markit's final May manufacturing Purchasing Managers' Index (PMI) was 52.2, below a preliminary flash reading of 52.3 but just ahead of April's 52.0. It was the 23rd month it has been above the 50 mark that separates growth from contraction.

"The rate of growth is modest rather than spectacular, however, and there are clearly countries which continue to struggle," said Chris Williamson, Markit's chief economist.

"Weakness is centered in the region's core, with France's manufacturing sector still in decline and Germany only seeing very meager growth."

Earlier factory PMIs from Germany and France were 51.1 and 49.4 respectively.

New business across the bloc came in at its fastest rate for over a year, however, driven by export demand as consumers took advantage of a weaker euro making goods cheaper. A new orders sub-index jumped to a 13-month high of 52.7 from 51.8. That meant the output index, which feeds into a composite PMI due on Wednesday and seen as a good growth indicator, only dipped slightly to 53.3 from April's 53.4. The flash reading was 53.5.