Euro zone economy slowing, but not as much as feared

FILE PHOTO - Unfinished pliers still glow after being hot-formed by a hammer at the factory of Knipex, a 130 year-old family-owned pliers and tools maker company in Wuppertal, western Germany - REUTERS

LONDON (Reuters): Euro zone business growth slumped to a two-year low in October as growing trade tensions and tariffs, alongside rising political uncertainty, put a dent in exports and optimism, a survey showed on Tuesday.

However, while survey and official figures on Tuesday showed the slowdown is relatively widespread, the clouds over the euro zone are not as dark as recently feared.

Any positive signs will be welcomed by policymakers at the European Central Bank as they look to halt their 2.6 trillion euro asset purchase program by the end of the year, shutting off one of the main sources of stimulus to the euro zone economy.

IHS Markit’s Euro Zone Composite Final Purchasing Managers’ Index (PMI), seen as a good guide to economic health, fell to 53.1 in October from September’s 54.1, its lowest since September 2016.

But it was above a 52.7 flash estimate and still comfortably higher than the 50 mark which separates growth from contraction.

“The underlying progress in the economy looks pretty solid,” said James Nixon at Oxford Economics.

Official figures showed that industrial orders in Germany rose just 0.3% in September but a Reuters poll had predicted a 0.6% fall, suggesting Europe’s biggest economy ended the third quarter on a solid footing.

And the final German services PMI was revised up to 54.7 from a preliminary reading of 53.6 - one of the biggest upward adjustments in the survey’s history.

Activity in France accelerated as companies stepped up hiring after an increase in new business and Spain’s service sector expanded at its fastest rate since June, also supported by growth in new business, earlier PMIs showed.