Eurozone setback as activity slows down

Business activity slowed more than any forecaster expected in the eurozone this month while manufacturing in Asia’s top two economies hit the brakes, suggesting the global recovery path is less clear than policymakers are predicting.

The sudden drop in the eurozone flash composite Markit Purchasing Managers’ Index (PMI) was driven by sharply slower growth in manufacturing orders in Germany and France, suggesting recent optimism about the eurozone may be overdone.

This marks the first major eurozone indicator that has disappointed all forecasts in quite some time, and comes just a month after the European Central Bank began purchasing government bonds to stimulate the economy.

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The eurozone composite PMI fell to 53.5 from 54.0, below both the 54.4 consensus and the lowest forecast in a Reuters poll. The 50-point mark separates growth and contraction.

Factory order growth slowed particularly in France, but also in major goods exporter Germany, and the eurozone’s number one economy, suggesting more subdued activity ahead.

Both the flash manufacturing and services PMIs for France and Germany fell below the lowest forecast. For the eurozone, only the service PMI didn’t.

In China, the flash PMI fell to a one-year low of 49.2 from 49.6 and Japan’s PMI also slid, to 49.7 from 50.3 in April.