London: Eurozone business growth remained muted this month, suggesting the current quarter’s economic performance won’t match the strong pace set at the start of the year, a survey showed.

A surprising bounce in manufacturing activity was not enough to offset a marked slowdown in service industry growth, according to Markit’s flash Purchasing Managers’ Indexes.

One of the first growth indicators in a month, the composite PMI fell to 52.8 from May’s 53.1. A Reuters poll had predicted a more modest dip to 53.0.

“June’s fall in the Eurozone composite PMI to a 17-month low seems to have been partly driven by strikes in France and may also reflect activity being put on hold ahead of today’s UK vote on EU membership,” said Stephen Brown at Capital Economics.

French unions have been protesting since early March about planned labour reforms while Britain, which is outside the currency bloc, is holding a referendum on whether to leave the wider European Union.

Sterling hit a 2016 high and world stocks climbed for a fifth day running on Thursday as financial markets, racked for months by worries about what Brexit would mean for Europe’s stability, digested the latest opinion polls showing the “Remain” camp holding a small lead.

Across France, business activity unexpectedly slowed in June for the first time in four months as waves of strikes added extra trouble for companies already struggling with weak demand.

Morale in the country fell more than expected this month, according to data from state statistics body INSEE. Companies were reluctant to buy into signs of recovery as the strikes continued.

Stable index

Germany’s private sector activity matched the wider bloc, with humming factories failing to offset a slowdown in services.

But a stable index suggested Europe’s biggest economy probably expanded at a solid rate in the second quarter.

Markit said the PMIs point to second-quarter growth in the Eurozone of 0.4 per cent, slightly faster than the 0.3 per cent predicted in a Reuters poll earlier this month. The economy expanded 0.6 per cent in the first quarter.

“The flash composite PMI was close to our expectations and confirmed our forecast that GDP growth has continued in the second quarter but at a slower pace than in the beginning of the year,” said Tuuli Koivu at Nordea.

Of concern to policymakers at the European Central Bank, companies cut prices at a slightly sharper rate this month. The output price index fell further below the 50 mark that separates growth from contraction, coming in at 49.2.

Inflation was -0.1 per cent in May, nowhere near the central bank’s target of close to but below 2 per cent.

Premature optimism

“Input prices are now strengthening as oil and commodity prices continue to rebound, but businesses did not pass on those higher prices to consumers as competitive pressures persist,” said Bert Colijn at ING.

“This indicates that optimism about a pickup in core inflation seems premature.” Discounting failed to drive growth in the dominant service industry. Its PMI slumped to 52.4 from 53.3, below even the lowest forecast in a Reuters poll.

That made companies less optimistic. The business expectations index fell to 61.9 from 62.8, its lowest reading in almost a year.

The picture was far brighter for manufacturing. The factory PMI leapt to a six-month high of 52.6 from 51.5, above all the forecasts in a Reuters poll. A subindex measuring output was 53.8, up from 52.4.

That surge in activity was driven by new orders growing at their fastest rate this year. The sub index was 53.4 compared with May’s 51.7.