Euro zone factory growth reaches six-month high in June

By Jonathan Cable

LONDON (Reuters) – Euro zone business activity expanded at its fastest rate this year in June, but Britain’s vote to quit the European Union could cause it to slow in coming months.

Discounting helped drive up new orders and output, encouraging companies to hire more people to meet demand,

according to Markit’s final manufacturing Purchasing Managers’ Index (PMI).

That survey, however, was largely conducted before the British referendum on June 23. The vote by Britain – already outside the euro zone – to leave the EU entirely sent shockwaves across the globe.

The Markit PMI for the euro zone climbed to 52.8 from May’s 51.5, higher than the earlier flash reading of 52.6. Anything above 50 indicates growth.

A sub-index measuring output that feeds into a composite PMI due on Tuesday jumped to 53.9 from 52.4. The flash estimate was 53.8.

“Euro area manufacturers enjoyed their strongest growth so far this year in June. However, the data were collected prior to the UK EU referendum result, so any Brexit impact is yet to be seen in the PMI,” said Chris Williamson, chief economist at Markit.

“Given the uncertainty caused by the prospect of Brexit, it seems likely that business and consumer spending will be adversely affected across the euro area in the short term at least, pulling growth down in coming months.”

The bloc’s economy grew a surprisingly strong 0.6 percent in the first three months of the year, but that pace is expected to have weakened last quarter [ECILT/EU].

Some of June’s demand was encouraged by companies cutting prices, as they have for almost a year. That is likely to concern policymakers at the European Central Bank, who have failed to get inflation anywhere near their target of just below 2 percent.

Euro zone consumer prices rose just 0.1 percent in June, official data showed on Thursday, even though the ECB is buying 80 billion euros worth of assets a month, cutting interest rates below zero and offering free loans to banks.

But the discounting helped push new orders to pick up at the fastest rate this year. The sub-index rose to 53.6 from 51.7.